Question

Loop 1604 Inc. has prepared a static budget at the beginning of the month. At the end of the month the following information is available: Static Budget: Sales volume: 1,000 units: Price $70 per unit Variable costs: $32 per unit: Fixed costs: $37,500 per month Operating Income: $500 Actual Results: Sales volume: 990 units: Price $74 per unit Variable costs: $35 per unit: Fixed costs: $33,000 per month Operating Income: $5,610 Calculate the flexible budget variance for Sales Revenue.

Answer 1

Answer:

Flexible budget variance for Sales Revenue = $3,960 Favorable

Explanation:

Provided budget is static budget, firstly for calculating flexible budget variance for Sales Revenue.

For this flexible budget is made of same level of quantity as of actual level.

therefore Flexible budget sales = 990 units @ $70 per unit price will be same as of static budget.

Therefore Variance = Standard Flexible Budgeted Sales - Actual Sales

Standard Flexible Budgeted Sales = 990 $\times$ $70 = $69,300

Actual Sales Revenue = 990 $\times$ $74 = $73,260

Since actual revenue is more than budgeted sales this is favorable.

Flexible Budget Variance for Sales Revenue = $69,300 - $73,260 = $3,960

Since actual revenue is more than budgeted revenue therefore this is a favorable variance.

Flexible budget variance for Sales Revenue = $3,960 Favorable