Question

Requirement 1. Calculate the​ sales-volume variance and​ flexible-budget variance for operating income. Begin with the actual​ results, then complete the flexible budget columns and the static budget columns. Label each variance as favorable​ (F) or unfavorable​ (U).​ (For variances with a​ $0 balance, make sure to enter​ "0" in the appropriate field. If the variance is​ zero, do not select a​ label.) Actual Results Output units 5,700 Revenues $ 3,990,000 Direct materials $ 783,000 Direct manufacturing labor 590,400 Fixed costs 1,190,000 Total costs $ 2,563,400 Operating income $ 1,426,600 Flexible-Budget Flexible Variance Budget 0 5,700 $ 114,000 F $ 3,876,000 $ 7,800 U $ 775,200 8,100 F 598,500 410,000 F 1,600,000 $ 410,300 F $ 2,973,700 $ 524,300 F $ 902,300 Sales-Volume Static Variance Budget

Answer 1

Flexible budget variance is the difference of the actual results and the flexible budget results.

Actual Sales volume is usually lower than expected . So static budget is prepared to find the differences at lower levels of sales so that the sales prices could be adjusted using variances.

Step-by-step explanation:

Actual Results Flexible-Budget Flexible Variance

Budget

Output units 5,700 5,700 0

Revenues $ 3,990,000 $ 3,876,000 114,000 F

Direct materials $ 783,000 $ 775,200 7,800 U

Direct Mfg labor 590,400 598,500 8,100 F

Fixed costs 1,190,000 1,600,000 410,000 F

Total costs $ 2,563,400 $ 2,973,700 410,300 F

Operating

Income $ 1,426,600 $ 902,300 524,300 F

First we compare the actual and the flexible budget as given in the question and write down the variances . Then we compare the flexible budget for which level of output production is 5700 and static budget for which we have taken the output level of production 5500 units . The fixed costs remain constant and variances can be calculated for each change in variable for the 5500 output units of production.

Flexible-Budget Sales-Volume Static Budget

Variance

Output units 5,700 5500

Revenues $ 3,876,000 136,000 Fav 3740,000

Direct materials $ 775,200 27,200 Un 748,000

Direct Mfg labor 598,500 21000 Un 577,500

Fixed costs 1,600,000 ---- 1,600,000

Total costs $ 2,973,700 48,200 Un 2925,500

Operating

Income $ 902,300 87,800 Fav $ 814,500