1.
Prepare a flexible budget for the production and sale of 950 units.
1.
Explanation of Solution
Prepare a flexible budget for the production and sale of 950 units.
Figure (1)
2. a
Compute the sales volume variance, in terms of operating income and indicate whether this variance is favorable (F), or favorable (U).
2. a
Explanation of Solution
Compute the sales volume variance, in terms of operating income and indicate whether this variance is favorable (F), or favorable (U).
Sales volume variance(in terms of operating income)}= (Flexible budget operating income−Master(static) budget operating income)= $182,500−$200,000=$17,500U
2. b
Compute the sales volume variance, in terms of contribution margin and indicate whether this variance is favorable (F), or favorable (U).
2. b
Explanation of Solution
Compute the sales volume variance, in terms of contribution margin and indicate whether this variance is favorable (F), or favorable (U).
Sales volume variance ( in terms of contribution margin)}= (Flexible-budget contribution margin−Master (static) budget contribution margin)= $332,500−$350,000=$17,500U
3. a
Calculate total flexible
3. a
Explanation of Solution
Calculate total flexible budget variance and indicate whether this variance is favorable (F), or favorable (U).
Total flexible-budget variance= (Actual operating income−Flexible budget operating income)= $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
Calculate total variable cost flexible budget variance and indicate whether this variance is favorable (F), or favorable (U).
3. b
Explanation of Solution
Calculate total variable cost flexible budget variance and indicate whether this variance is favorable (F), or favorable (U).
Total variable cost flexible-budget variance} = (Actual variable costs−Flexible budget variable costs)= $475,000−$427,500=$47,500U
3. c
Calculate total fixed cost flexible-budget variance and indicate whether this variance is favorable (F), or favorable (U).
3. c
Explanation of Solution
Calculate total fixed cost flexible-budget variance and indicate whether this variance is favorable (F), or favorable (U).
Total fixed cost flexible-budget variance} = (Actual fixed costs−Flexible budget fixed costs)= $180,000−$150,000=$30,000U
3. d
Calculate selling price variance and indicate whether this variance is favorable (F), or favorable (U).
3. d
Explanation of Solution
Calculate selling price variance and indicate whether this variance is favorable (F), or favorable (U).
Selling price variance = (Actual sales revenue−Flexible-budget sales revenue)= $793,250−$760,000=$33,250F
Prepare analysis of operating income:
Figure (2)
Calculate total master (static) budget variance:
Total master (static) budget variance }= (Total operating income variance−Flexible budget variance)= $61,750U−$17,500U= $44,250
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Chapter 14 Solutions
COST MANAGEMENT LOOSELEAF CUSTOM
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