Flexible-Budget Variances and Sales Volume Variances RTI Company’s master budget calls forproduction and sale of 18,000 units for $81,000, variable costs of $30,600, and fixed costs of $20,000.During the most recent period, the company incurred $32,000 of variable costs to produce and sell20,000 units for $85,000. During this same period, the company earned $25,000 of operating income.Required1. Determine the following for RTI Company (Round all answers to the nearest whole dollar):a. Flexible-budget operating income.b. Flexible-budget variance, in terms of contribution margin. Was this variance favorable (F) orunfavorable (U)?c. Flexible-budget variance, in terms of operating income. Was this variance favorable (F) or unfavorable (U)? d. Sales volume variance, in terms of contribution margin. Was this variance favorable (F) or unfavorable (U)? e. Sales volume variance, in terms of operating income. Was this variance favorable (F) or unfavorable (U)? 2. Explain why the contribution margin sales volume variance and the operating income sales volumevariance for the same period are likely to be identical.3. Explain why the contribution margin flexible-budget variance is likely to differ from the operatingincome flexible-budget variance for the same period.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Flexible-Budget Variances and Sales Volume Variances RTI Company’s
production and sale of 18,000 units for $81,000, variable costs of $30,600, and fixed costs of $20,000.
During the most recent period, the company incurred $32,000 of variable costs to produce and sell
20,000 units for $85,000. During this same period, the company earned $25,000 of operating income.
Required
1. Determine the following for RTI Company (Round all answers to the nearest whole dollar):
a. Flexible-budget operating income.
b. Flexible-
unfavorable (U)?
c. Flexible-budget variance, in terms of operating income. Was this variance favorable (F) or unfavorable (U)?
d. Sales volume variance, in terms of contribution margin. Was this variance favorable (F) or unfavorable (U)?
e. Sales volume variance, in terms of operating income. Was this variance favorable (F) or unfavorable (U)?
2. Explain why the contribution margin sales volume variance and the operating income sales volume
variance for the same period are likely to be identical.
3. Explain why the contribution margin flexible-budget variance is likely to differ from the operating
income flexible-budget variance for the same period.
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