Question

Walton Company has provided the following 2018 data:

Budget Sales $ 519,000
Variable product costs 188,000
Variable selling expense 46,000
Other variable expenses 3,300
Fixed product costs 15,700
Fixed selling expense 23,400
Other fixed expenses 1,300
Interest expense 800
Variances Sales 8,600 U
Variable product costs 4,600 F
Variable selling expense 2,100 U
Other variable expenses 1,800 U
Fixed product costs 240 F
Fixed selling expense 480 F
Other fixed expenses 160 U
Interest expense 90 F

Prepare a budgeted and actual income statement for internal use. Separate operating income from net income in the statements. Calculate variances and identify them as favorable (F) or unfavorable (U) by comparing the budgeted and actual amounts determined.

Answer 1

Walton Company

Income Statement

Actual Budgeted Variances

Sales 510,400 $ 519,000 8,600 U

Variable product costs 183400 188,000 4,600 F

Variable selling expense 48100 46,000 2,100 U

Other variable expenses 5100 3,300 1,800 U

Contribution Margin 273,800 281,700 7,900 unfav

Fixed product costs 15460 15,700 240 F

Fixed selling expense 22920 23,400 480 F

Operating Income 235420 242,600 7,180 unfav

Other fixed expenses 1460 1,300 160 U

Interest expense 710 800 90 F

Net income 233,250 240,500 7,250 unfav

We calculate the actual amounts from the budgeted amount by adding the variances when they are unfavorable and subtracting them when they are favorable . But in case of sales this is reversed. The actual sales are calculated by subtracting unfavorable variance from budgeted sales.

The fav amounts are subtracted from the unfav amounts to get the results .

8,600 u + ( 4,600)F + 2,100 U +1,800= 7,900 unfav