Question

The Ferguson Company estimated that October sales would be 100,000 units with an average selling price of $6.00. Actual sales for October were 105,000 units and average selling price was $5.95.

The sales revenue flexible budget variance was:

A. $5,000 favorable.
B. $5,250 unfavorable.
C. $5,000 unfavorable.
D. $5,250 favorable.

Answer 1

The sales revenue flexible budget variance is calculated by subtracting the actual sales revenue from the budgeted sales revenue at the actual sales volume. In this case, it results in an unfavorable variance of $5,250, which is option B.

Step-by-step explanation:

To calculate the sales revenue flexible budget variance, we must compare the actual sales revenue to the budgeted sales revenue at the actual sales volume. The budgeted sales price was anticipated to be $6.00, but the actual sales price was $5.95.

The budgeted sales revenue at actual volume (105,000 units sold) would be:

• 105,000 units × $6.00/unit = $630,000

The actual sales revenue was:

• 105,000 units × $5.95/unit = $624,750

To find the variance, subtract the actual sales revenue from the budgeted sales revenue:

• $630,000 - $624,750 = $5,250

Since the actual revenue is less than the budgeted amount, this is an unfavorable variance. Therefore, the correct answer is:

• B. $5,250 unfavorable.

Answer 2

B) $5,250 Unfavorable

Step-by-step explanation:

The sales revenue variance can be calculated by:

Variance = (Budgeted selling price - Actual selling price) * Actual units sold

Variance = (6 - 5.95) * 105,000 = $5250. Unfavorable as if budgeted price was charged it would result in a higher revenue at current level of activity.

The sales volume variance on the other hand is favorable as more units were sold than budgeted.

Hope that helps.