Question

Titanium Blades refines titanium for use in all brands of razor blades. It prepared a static budget for the sales of 5,000 units. These variances were observed:

Actual Results and Variances, respectively:
Sales $150,000, $25,000 Favorable;
Variable expenses 77,800, 12,800 Unfavorable;
Fixed expenses 70,300, 300 Unfavorable;
Net income (loss) 1,900, 11,900 Unfavorable.
1. What is the fixed expense unfavorable variance from the flexible budget?
2. What is the unfavorable variance compared to the flexible budget net income?

Answer 1

The fixed expense unfavorable variance for Titanium Blades is $300, and the unfavorable variance for the net income is $11,900, indicating both fixed expenses and actual net income were higher than budgeted.

Step-by-step explanation:

The fixed expense unfavorable variance from the flexible budget is calculated by considering the difference between the actual fixed expenses and what was expected (budgeted) for the fixed expenses. In this case, the unfavorable variance for fixed expenses is stated to be $300. This means that the actual fixed expenses were $300 more than what was budgeted. The unfavorable variance compared to the flexible budget net income is given as $11,900. This indicates that the net income is less than what was budgeted by $11,900, meaning that the actual net income was lower than expected. In summary, a business iterates through planning and operational stages, it's essential to monitor both fixed and variable costs to manage overall total costs effectively. For Titanium Blades, this means recognizing where budgets have not aligned with actuals and adjusting plans accordingly.