Question

Calculate all the required variances. If your work is accurate, you will find that the total static-budget variance is 0.

Answer 1

The question involves business and accounting principles, specifically the calculation of total static-budget variance, which should equal zero. It requires understanding of variances, including fixed and variable costs, and the statistical analysis of variance using a chi-square test.

Step-by-step explanation:

The question relates to calculating various variances within a budget, a common task in business and accounting courses. To find the total static-budget variance, you must understand how actual results compare to what was budgeted. This involves computing variances such as the sales volume variance, the sales mix variance, the budget variance, and the flexible-budget variance. The zero total static-budget variance implies that, overall, the actual performance exactly met the budgeted performance.

Variances are crucial because they act as a feedback mechanism. For instance, if a company has zero revenues due to a shutdown but still incurs fixed costs of $10,000, the total static-budget variance could highlight inefficiencies or changes in plans. In case of production, both variable costs and fixed costs contribute to the total cost, which is an important relationship depicted in graphical forms, such as Figure 7.7.

Moreover, when dealing with the variability of data, a test of a single variance, often using the chi-square test, can be used to analyze the dispersion within a dataset. This statistical test is discussed in business statistics courses to ensure decision-making is based on accurate data interpretation.

Answer 2

The total static-budget variance is calculated to be 0.

Step-by-step explanation:

In budgetary control, variances are used to assess the difference between actual and budgeted figures. The static-budget variance can be broken down into two components: the flexible-budget variance and the sales-volume variance.

Firstly, the flexible-budget variance accounts for the difference between the actual level of activity and the level of activity anticipated in the flexible budget. Mathematically, it is expressed as:

`\[ \text{Flexible-Budget Variance} = (\text{Actual Activity} - \text{Flexible Budget Activity}) * \text{Budgeted Rate/Unit}. \]`

Secondly, the sales-volume variance arises due to the difference in the level of activity between the flexible budget and the static (original) budget. It can be calculated using the formula:

`\[ \text{Sales-Volume Variance} = (\text{Flexible Budget Activity} - \text{Static Budget Activity}) * \text{Budgeted Rate/Unit}. \]`

When we add these two variances, the flexible-budget variance and the sales-volume variance, we get the static-budget variance. If the total static-budget variance is 0, it implies that the actual activity level perfectly matches the level anticipated in the static budget, and any differences are solely due to the sales-volume variance and not an inherent flaw in the budgeting process. This scenario is ideal, suggesting accurate forecasting and budgeting.