Question

In September, Numbers Incorporated sold 50,000 units of its only product for $328,000, and incurred a total cost of $305,000, of which $33,000 was fixed costs. The flexible budget for September showed total sales of $380,000. Among variances of the period were:

a) total variable cost flexible-budget variance, $7,000U;
b) total flexible-budget variance, $79,000U;
c) sales volume variance, in terms of contribution margin, $35,000U.

Answer 1

Total costs for Numbers Incorporated in September were $305,000. The variances for the period include a $7,000 unfavorable total variable cost flexible-budget variance, a $79,000 unfavorable total flexible-budget variance, and a $35,000 unfavorable sales volume variance in terms of contribution margin. Option c.

Step-by-step explanation:

Total costs are the sum of fixed plus variable costs. In this case, the fixed costs of Numbers Incorporated are $33,000 and the variable costs are $272,000. The flexible budget for September showed total sales of $380,000. The total variable cost flexible-budget variance is calculated by subtracting the actual total variable cost ($272,000) from the flexible budget for total variable cost ($305,000), resulting in an unfavorable variance of $7,000.

The total flexible-budget variance is calculated by subtracting the actual total cost ($305,000) from the flexible budget for total cost ($380,000), resulting in an unfavorable variance of $79,000.

The sales volume variance is calculated by subtracting the flexible budget for total sales ($380,000) from the actual total sales ($328,000), and then multiplying that difference by the contribution margin percentage. If the sales volume variance is given as $35,000 unfavorable, it means the actual total sales were $35,000 lower than what was expected based on the flexible budget. Option c.