At the Beginning of the Period,Cambridge Company Estimated That Sales

question 113

Essay

At the beginning of the period,Cambridge Company estimated that sales would be 10,000 units.Actual sales totaled 14,000 units.The manager was very excited about the unexpected additional income that the extra 4,000 units would produce.Imagine her surprise upon seeing the following report: $\begin{array}{c}\begin{array}{|l|}\hline \\\hline \text {Number of units}\\\hline \\ \hline \text {Sales}\\\hline \text {Less variable costs:}\\\hline \text {Naterials}\\\hline \text {Labor}\\\hline \text {Overhead}\\\hline \text {Selling and admin.}\\\hline \text {Contribution margin}\\\hline \text {Less fixed costs:}\\\hline \text {Manifactuing}\\\hline \text {Selling and admin.}\\\hline \text {Net income}\\\hline \end{array}\begin{array}{c|}\hline \text {Static Budget }\\\hline10,000\\\hline\\\hline\$\quad500,000\\\hline\\\hline12,000\\\hline100,000\\\hline50,000\\\hline20,000\\\hline\$\quad210,000\\\hline\\\hline30,000\\\hline60,000\\\hline\$\quad120,000\\\hline\end{array}\begin{array}{r|}\hline\text {Actual Results}\\\hline14,000\\\hline\\\hline \$ 600,000 \\\hline \\\hline 164,000 \\\hline 134,000 \\\hline 72,000 \\\hline 30,000 \\\hline\$ \quad 200,000) \\\hline\\\hline 32,000 \\ \hline 56,000 \\ \hline \$ \quad 112,000 \\ \hline\end{array}\end{array}$
The company's owner is very upset,charging that the manager did a lousy job of controlling costs.
Required:
1)Prepare a performance report that can be used to evaluate the owner's charge that the manager did a poor job of controlling costs.Be sure to label variances as favorable or unfavorable.
2)Is the owner justified in charging the manager with poor cost control? Why or why not?

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Definitions:

Property Insurance Policy

A contract that provides financial reimbursement to the owner or renter of a structure and its contents, in case of damage or theft.

Premiums

Regular payments made to an insurance company in exchange for coverage.

Casualty Insurance

Insurance coverage against loss or liability stemming from accidents or unexpected events, excluding life, health, and property insurance.

Salvage Yard

A place where damaged, decommissioned, or inoperative vehicles are stored and processed for parts recovery and recycling.