At the Beginning of the Period, Cambridge Company Estimated That

question 130

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:
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?
$\begin{array}{|c|c|c|}\hline & \text { Static Budget } & \text { Actual Results } \\\hline \text { Number of units } & 10,000 & 14,000 \\\hline\\\hline \text { Sales } & 500,000 & 600,000 \\\hline \text { Less variable costs: } & & \\\hline \text { Materials } & 120,000 & 164,000 \\\hline \text { Labor } & 100,000 & 134,000 \\\hline \text { Overhead } & 50,000 & 72,000 \\\hline \text { Selling and admin } & 20,000 & 30,000 \\\hline \text { Contribution margin } & \$ 210,000 & \$ 200,000 \\\hline{\text { Less fixed costs: }} \\\hline \text { Mamufactuing } & 30,000 & 32,000 \\\hline \text { Selling and admin. } & 60,000 & 56,000 \\\hline \text { Net income } & \$ 120,000 & \$ 112,000 \\\hline\end{array}$

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Definitions:

Pricing Power

The ability of a firm to dictate or influence the price of its goods or services in the market.

Elasticities of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good, showing the responsiveness of consumers.

Distinct Groups

Groups characterized by clear, definable differences or boundaries in social, economic, demographic, or other relevant aspects.

Southwest Airlines

This is an American low-cost carrier known for its unique business model and customer service approach.