Question

Village Piemaker, Inc. bakes pies for restaurants in the Pacific Northwest. The company operates three departments: coconut, blueberry, and apple. Department managers are held responsible for generating revenue and controlling costs. The following information for the coconut department was compiled for the previous period:

Actual Results

Sales Volume (units): 10,000
Sales Revenue: $60,000
Variable Manufacturing Costs: $8,000
Fixed Manufacturing Costs: $6,000
Variable Operating Costs: $1,500
Fixed Operating Costs: $1,000
Master Budget

Sales Volume (units): 8,000
Sales Revenue: $40,000
Variable Manufacturing Costs: $4,000
Fixed Manufacturing Costs: $5,500
Variable Operating Costs: $1,600
Fixed Operating Costs: $1,000
Assuming variances are separately calculated for each line item listed above, which of the following statements is correct?

a) Total fixed costs in the flexible budget are $5,500.
b) Variable operating costs have offsetting flexible budget variances and volume variances, leading to a master budget variance of $0.
c) The volume variance for sales revenue is favorable, and the flexible budget variance for sales revenue is also favorable.

Answer 1

The volume variance for sales revenue is favorable, and the flexible budget variance for sales revenue is also favorable.

Step-by-step explanation:

The correct statement is c) The volume variance for sales revenue is favorable, and the flexible budget variance for sales revenue is also favorable.

The volume variance for sales revenue measures the difference between the actual sales volume and the budgeted sales volume, multiplied by the budgeted selling price. If the actual sales volume is higher than the budgeted sales volume, resulting in more revenue, the variance is considered favorable.

The flexible budget variance for sales revenue compares the actual sales revenue to the flexible budgeted sales revenue. If the actual sales revenue exceeds the flexible budgeted sales revenue, the variance is favorable.