Question

Prepare a flexible budget and compute the sales and variable cost volume variances based on a comparison between the master budget and the flexible budget. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Answer 1

To compute the sales and variable cost volume variances, compare the master budget with the flexible budget. The sales volume variance measures the difference between actual and flexible budgeted sales volume. The variable cost volume variance measures the difference between actual and budgeted variable costs.

Step-by-step explanation:

In order to prepare a flexible budget and compute the sales and variable cost volume variances, you would need to compare the master budget with the flexible budget. The flexible budget is adjusted based on actual sales volume, allowing for variations in costs and revenues.

The sales volume variance measures the difference between the actual sales volume and the flexible budgeted sales volume. If the actual sales volume is higher than the flexible budget, it would be considered favorable (F). If it is lower, it would be unfavorable (U).

The variable cost volume variance measures the difference between the actual variable costs and the flexible budgeted variable costs. If the actual variable costs are higher than the flexible budget, it would be considered unfavorable (U). If they are lower, it would be favorable (F).