Question

What is the formula to calculate the flexible budget for BAD DEBT EXPENSE

	Kelsey's Frozen Confectionaries
	Fexible Budget Performance Report
	For the month ended June 30
	ACTUAL	Flexible Budget Variance	FLEXIBLE BUDGET	Variance %	MASTER BUDGET
Volume (in cases)	21,460	1,460	21,460	7.30%	20,000
Sales Revenue	$        1,131,020	$                    58,020	$                1,073,000	5.80%	$         1,000,000
Less Variable Expenses:
Cost of Goods Sold	$           682,880	$                    39,080	$                   643,800	6.51%	$             600,000
Sales Commissions	$              58,685	$                      5,035	$                      53,650	10.07%	$               50,000
Shipping Expense	$              44,213	$                      1,293	$                      42,920	3.23%	$               40,000
Bad debt expense	$              16,930	$                    16,930		188.11%	$                  9,000
Contribution Margin	$           328,312	$                    (4,318)	$                   332,630	-1.43%	$             301,000
Less Fixed Expenses:
Salaries	$              43,000		$                      40,000		$               40,000
Lease on Distn center	$              15,500		$                      17,000		$               17,000
Deprec. on fleet/equip	$              12,000		$                      12,000		$               12,000
Advertising	$                7,750		$                      10,000		$               10,000
Office rent, phone, net	$              12,300		$                      11,000		$               11,000
Operating Income	$           237,762		$                   242,630		$             211,000

Answer 1

Formula to calculate bad debt expense for Flexible Budget

Master Budget (units) = 20,000

Master Budget bad debt expense = 9,000

Budgeted Per unit bad debt expense = Master Budget bad debt expense /  Master Budget (units)

= 9,000 / 20,000 = 0.45

Actual units = 21,460

Flexible Budget bad debt expense = Actual units * Budgeted Per unit bad debt expense

= 21,460 * 0.45 = 9,657

Flexible Budget bad debt expense variance = Actual Bad debt expense - Flexible Budget bad debt expense

= 16,930 - 9,657 = 7,273

Variance % = (Flexible Budget bad debt expense variance / Master Budget bad debt expense) *100

= (7,273 / 9000) * 100 = 80.81%

	Actual	Flexible Budget Variance	Flexible Budget	Variance %	Master Budget
Bad Debt Expense	$16,930	$7,273	$9,657	80.81%	$9,000