Cost Management
Cost Management
8th Edition
ISBN: 9781259917028
Author: BLOCHER, Edward
Publisher: Mcgraw-hill Education,
Question
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Chapter 14, Problem 25E

1.

To determine

Prepare a flexible budget for the production and sale of 950 units.

1.

Expert Solution
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Explanation of Solution

Prepare a flexible budget for the production and sale of 950 units.

Cost Management, Chapter 14, Problem 25E , additional homework tip  1

Figure (1)

2. a

To determine

Compute the sales volume variance, in terms of operating income and indicate whether this variance is favorable (F), or favorable (U).

2. a

Expert Solution
Check Mark

Explanation of Solution

Compute the sales volume variance, in terms of operating income and indicate whether this variance is favorable (F), or favorable (U).

Salesvolumevariance(intermsofoperatingincome)}=(FlexiblebudgetoperatingincomeMaster(static)budgetoperatingincome)=$182,500$200,000=$17,500U

2. b

To determine

Compute the sales volume variance, in terms of contribution margin and indicate whether this variance is favorable (F), or favorable (U).

2. b

Expert Solution
Check Mark

Explanation of Solution

Compute the sales volume variance, in terms of contribution margin and indicate whether this variance is favorable (F), or favorable (U).

Salesvolumevariance(intermsofcontributionmargin)}=(Flexible-budgetcontributionmarginMaster(static)budgetcontributionmargin)=$332,500$350,000=$17,500U

3. a

To determine

Calculate total flexible budget variance and indicate whether this variance is favorable (F), or favorable (U).

3. a

Expert Solution
Check Mark

Explanation of Solution

Calculate total flexible budget variance and indicate whether this variance is favorable (F), or favorable (U).

Totalflexible-budgetvariance=(ActualoperatingincomeFlexiblebudgetoperatingincome)=$138,250$182,500=$44,250U

Working note:

Calculate operating income for the month of October 2019:

Actual Operating Results
For the Month of October 2019
Sales (950 units × $835.00 per unit) $793,250
Less: Total variable expenses $475,000
Contribution margin $318,250
Less: Fixed expenses $180,000
Operating income $138,250

Table (1)

3. b

To determine

Calculate total variable cost flexible budget variance and indicate whether this variance is favorable (F), or favorable (U).

3. b

Expert Solution
Check Mark

Explanation of Solution

Calculate total variable cost flexible budget variance and indicate whether this variance is favorable (F), or favorable (U).

Totalvariablecostflexible-budgetvariance}=(ActualvariablecostsFlexiblebudgetvariablecosts)=$475,000$427,500=$47,500U

3. c

To determine

Calculate total fixed cost flexible-budget variance and indicate whether this variance is favorable (F), or favorable (U).

3. c

Expert Solution
Check Mark

Explanation of Solution

Calculate total fixed cost flexible-budget variance and indicate whether this variance is favorable (F), or favorable (U).

Totalfixedcostflexible-budgetvariance}=(ActualfixedcostsFlexiblebudgetfixedcosts)=$180,000$150,000=$30,000U

3. d

To determine

Calculate selling price variance and indicate whether this variance is favorable (F), or favorable (U).

3. d

Expert Solution
Check Mark

Explanation of Solution

Calculate selling price variance and indicate whether this variance is favorable (F), or favorable (U).

Sellingpricevariance=(ActualsalesrevenueFlexible-budgetsalesrevenue)=$793,250$760,000=$33,250F

Prepare analysis of operating income:

Cost Management, Chapter 14, Problem 25E , additional homework tip  2

Figure (2)

Calculate total master (static) budget variance:

Totalmaster(static)budgetvariance}=(TotaloperatingincomevarianceFlexiblebudgetvariance)=$61,750U$17,500U=$44,250

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