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
