Question

Garbera Enterprises manufactures tires for the Formula 1 motor racing circuit. For August 2017, it budgeted to manufacture and sell 3,100 tires at a variable cost of $77 per tire and total fixed costs of $53,000. The budgeted selling price was $107 per tire. Actual results in August 2017 were 2,900 tires manufactured and sold at a selling price of $109 per tire. The actual total variable costs were $240,700, and the actual total fixed costs were $49,500. Read the requirements. Begin with the actual results, then complete the flexible budget columns and the static budget columns. Label each variance as favorable or unfavorable. (For variances with a $0 balance, make sure to enter "O" in the appropriate field. If the variance is zero, do not select a label.) Actual Flexible-Budget Flexible Sales-Volume Static Results Variances Budget Variances Budget Units sold Revenues Variable costs Contribution margin Fixed costs Operating income Requirement 2. Comment on the results in requirement 1. The total static-budget variance in operating income is $ D O There is a(n) There is a(n) [ total flexible-budget total flexible-budget variance and a(n) sales-volume variance. The sales-volume variance arises solely because actual units manufactured and sold were than the budgeted 3,100 units. The flexible-budget variance in operating income is due primarily to the I in unit variable costs.

Answer 1

Part 1

	Actual Results	Flexible-Budget Variances	Flexible Budget	Sales-Volume Variances	Static Budget
	(1)	(2) = (1) – (3)	(3)	(4) = (3) – (5)	(5)
Units sold	2900		2900	200 U	3100
Revenues	316100	5800 F	310300	21400 U	331700
Variable costs	240700	17400 U	223300	15400 F	238700
Contribution margin	75400	11600 U	87000	6000 U	93000
Fixed costs	49500	3500 F	53000	0	53000
Operating income	25900	8100 U	34000	6000 U	40000

3100*107 =331700

2900*107 =310300

2900*109 = 316100

240700/2900 = 83

3100*77 =238700

2900*77 =223300

Part 2

The total static-budget variance in operating income is $14100 U. There is an unfavorable total flexible-budget variance and an unfavorable sales-volume variance. The sales-volume variance arises solely because actual units manufactured and sold were 200 less than the budgeted 3,600 units. The flexible-budget variance is due primarily to the $6 increase in unit variable costs.