Question

Requirement 1. Calculate the​ sales-volume variance and​ flexible-budget variance for operating income. Begin with the actual​ results, then complete the flexible budget columns and the static budget columns. Label each variance as favorable​ (F) or unfavorable​ (U).​ (For variances with a​ $0 balance, make sure to enter​ "0" in the appropriate field. If the variance is​ zero, do not select a​ label.) Actual Results Output units 5,700 Revenues $ 3,990,000 Direct materials $ 783,000 Direct manufacturing labor 590,400 Fixed costs 1,190,000 Total costs $ 2,563,400 Operating income $ 1,426,600 Flexible-Budget Flexible Variance Budget 0 5,700 $ 114,000 F $ 3,876,000 $ 7,800 U $ 775,200 8,100 F 598,500 410,000 F 1,600,000 $ 410,300 F $ 2,973,700 $ 524,300 F $ 902,300 Sales-Volume Static Variance Budget

Answer 1

Answer:

Flexible budget variance is the difference of the actual results and the flexible budget results.

Actual Sales volume is usually lower than expected . So static budget is prepared to find the differences at lower levels of sales so that the sales prices could be adjusted using variances.

Explanation:

Actual Results                 Flexible-Budget       Flexible Variance

                                                                                    Budget

Output units 5,700                 5,700                              0

Revenues $ 3,990,000       $ 3,876,000             114,000 F

Direct materials $ 783,000   $ 775,200               7,800 U

Direct Mfg labor 590,400     598,500                 8,100 F

Fixed costs 1,190,000          1,600,000               410,000 F

Total costs $ 2,563,400        $ 2,973,700           410,300 F

Operating

Income        $ 1,426,600        $ 902,300            524,300 F

First we compare the actual and the flexible budget as given in the question and write down the variances . Then we compare the flexible budget for which level of output production is 5700 and static budget for which we have taken the output level of production 5500 units . The fixed costs remain constant and variances can be calculated for each change in variable for the 5500 output units of production.                                  

                                   

                Flexible-Budget            Sales-Volume          Static Budget

                                                            Variance                      

Output units                 5,700                                          5500

Revenues           $ 3,876,000             136,000 Fav     3740,000

Direct materials    $ 775,200              27,200 Un          748,000

Direct Mfg labor      598,500               21000 Un           577,500

Fixed costs          1,600,000                    ----               1,600,000      

Total costs         $ 2,973,700                48,200 Un         2925,500

Operating

Income               $ 902,300                   87,800 Fav     $ 814,500