Question

Ralph Electronics had the following budgeted cost per unit for each category: Actual Results Flexible budget Units sold 15,000 15,000 Revenues $3,975,000 $3,600,000 Variable costs Direct materials 1,000,000 900,000 Direct manufacturing labor 1,500,000 1,275,000 Variable manufacturing overhead 250,000 225,000 Total variable costs 2,750,000 2,400,000 Contribution margin 1,225,000 1,200,000 Fixed costs 450,000 1,000,000 Operating income $775,000 $200,000 What is the flexible-budget variance for operating income for Ralph Electronics for the year?

Answer 1

The flexible-budget variance for operating income is $575,000 favorable

Step-by-step explanation:

In order to arrive at the flexible-budget variance for operating income, a thorough of line by line variance would be gives the makeup of the variance

Actual results Flexible budget Variance

Units sold 15,000 15,000 nil

$ $ $

Revenue 3,975,000 3,600,000 375,000 F

Variable costs

Direct materials 1,000,000 900,000 100,000 U

Direct maf. labor 1,500,000 1,275,000 225,000 U

Variable maf, ov. 250,000 225,000 25,000 U

Fixed costs 450,000 1,000,000 550,000 F

Operating income 775,000 200,000 575,000 F

The flexible-budget variance for operating income is $575,000($775,000-$200,000)

This can also be calculated as

$375000-$100,000-$225,000-$25000+$550,000=$575,000