Question

Sheridan Entertainment Corporation prepared a master budget for the month of November that was based on sales of 150,700 board games. The budgeted income statement for the period is as follows.

Sheridan Entertainment Corporation prepared a master budget for the month of November that was based on sales of 150,700 board games. The budgeted income statement for the period is as follows. $2,561,900 $678,150 226,050 467,170 Sales Revenue Variable expenses Direct materials Direct labor Variable overhead Total variable expenses Contribution margin Fixed overhead Fixed selling and administrative expenses Total fixed expenses Operating income 1,371,370 1,190,530 255,700 504,400 760,100 $430,430

Answer 1

Solution:

Part a - Flexible Budget for November

Flexible budget means the budget prepared by using actual level of activity achieved at standard price/cost.

It means actual level of activity is used i.e. 181,900 games and for standard price / cost we need to calculate the same by using the Master Budget information given in the question.

Calculation of Standard Rate per unit using Master Budget

	150,700 board games	$ Per Unit
Sales Revenue	$2,561,900	$17.00
Variable Expenses:
Direct materials	$678,150	$4.50
Direct labor	$226,050	$1.50
Variable overhead	$467,170	$3.10

Now, we can prepare Flexible Budget for November

	Unit	181,900 games
Sales Revenue	$17.00	$3,092,300
Variable Expenses:
Direct materials	$4.50	$818,550
Direct labor	$1.50	$272,850
Variable overhead	$3.10	$563,890
Total Variable expenses	$9.10	$1,655,290
Contribution Margin	$7.90	$1,437,010
Less: Fixed Expenses
Overhead		$255,700
Selling and administrative		$504,400
Total Fixed Expenses		$760,100
Operaing Income		$676,910

Note - Fixed Expense will remain same as given in Master Budget since fixed expenses are not vary with the production volume.

Part b - Static Budget Variance for November

	Actual Result	Static Budget Variance	Static Budget
Units Sales	181900	31200	F	150700
Sales Revenue	$3,081,700	$519,800	F	$2,561,900
Variable Expenses:
Direct materials	$805,250	$127,100	U	$678,150
Direct labor	$286,350	$60,300	U	$226,050
Variable overhead	$574,290	$107,120	U	$467,170
Total Variable expenses	$1,665,890	$294,520	U	$1,371,370
Contribution Margin	$1,415,810	$225,280	F	$1,190,530
Less: Fixed Expenses
Overhead	$270,400	$14,700	U	$255,700
Selling and administrative	$504,400	$0	None	$504,400
Total Fixed Expenses	$774,800	$14,700	U	$760,100
Operaing Income	$641,010	$210,580	F	$430,430

Part C - Performance Budget Report

Flexible Budget Performance Report
For November month
	Actual Result	Flexible Budget Variance	Flexible Budget	Sales Volume Variance	Static Budget
Units Sales	181900	0	None	181900	31200	F	150700
Sales Revenue	$3,081,700	$10,600	U	$3,092,300	$530,400	F	$2,561,900
Variable Expenses:
Direct materials	$805,250	$13,300	F	$818,550	$140,400	U	$678,150
Direct labor	$286,350	$13,500	U	$272,850	$46,800	U	$226,050
Variable overhead	$574,290	$10,400	U	$563,890	$96,720	U	$467,170
Total Variable expenses	$1,665,890	$10,600	F	$1,655,290	$283,920	U	$1,371,370
Contribution Margin	$1,415,810	$21,200	U	$1,437,010	$246,480	F	$1,190,530
Less: Fixed Expenses
Overhead	$270,400	$14,700	U	$255,700	$0	None	$255,700
Selling and administrative	$504,400	$0	None	$504,400	$0	None	$504,400
Total Fixed Expenses	$774,800	$14,700	U	$760,100	$0	None	$760,100
Operaing Income	$641,010	$35,900	U	$676,910	$246,480	F	$430,430