Question

1. What is the budgeted sales price per unit? 2. What is the budgeted variable expense per unit? 3. What is the budgeted fixed cost for the period? 4. Compute the master budget variances. Be sure to indicate each variance as favorable (F) or unfavorable (U.) 5. Management would like to determine the portion of the master budget variance that is (a) due to volume being different than originally anticipated, and (b) due to some other unexpected cause. Prepare a flexible budget performance report to address these questions, using the actual sales volume of 57,000 units and the budgeted sales volume of 54,000 units. Use the original budget assumptions for sales price, variable cost per unit, and fixed costs, assuming the relevant range stretches from 49,000 to 67,000 units. 6. Using the flexible budget performance report you prepared for Requirement 5, answer the following questions: a. How much of the master budget variance (calculated in Requirement 4) for operating income is due to volume being higher than expected? b. How much of the master budget variance for variable expenses is due to some cause other than volume? What could account for the flexible budget variance for sales revenue? d. What is the volume variance for fixed expenses? Why is it this amount?

Answer 1

	Actual	Master Budget	Master Budget Variance
Sales Volume	57,000	54,000	3,000	F
Sales Revenue	$     201,200	$        178,200	$        23,000	F
Less Variable Expenses	$       75,300	$          64,800	$        10,500	U
Contribution Margin	$     125,900	$        113,400	$        12,500	F
Less Fixed Expenses	$       63,900	$          63,000	$              900	U
Operating Income	$       62,000	$          50,400	$        11,600	F

Budgeted Sales price per unit = $178200 / 54000 = $3.30 per unit

Budgeted variable expense per unit = $64800 / 54000 = $1.20 per unit

Budgeted Fixed Cost per unit = $63000 / 54000 = $1.17 per unit