Question

Outdoor Inc recorded the following flex budget and actual results during November 2019:

	Actual	Flex Budget	Flex Budget Variance	Percentage Variance
SALES	$215,000	$200,000
COGS	$ 90,000	$ 95,000
Gross Profit
Operating Expenses	$89,000	$81,000
EBIT  Earnings Before Interest and Taxes
Interest Expense	$3,850	$3,450
Income Tax	$10,500	$10,500
Net Profit

1. Fill in the missing amounts in the table (Gross Profit, EBIT and Net Profit)
2. Calculate flex budget variance and percentage variance. Include ‘favourable F’ or ‘unfavourable U’ rating for each
3. What type of responsibility centre is shown above, for Outdoor Inc?
4. If management requires investigation of any variances greater than $8000 andexceeding 10%, which items will be investigated?

Answer 1

A&B&C&D Favourable/Unf Percentage Flex budget Flex Budget Variance avourable of variance Sno Particulars Actual Investigation 1 Sales 2 COGS 215000 90000 200000 95000 15000 Unfavourable 5000 Favourable 3 Gross Profit(1-2) 4 Operating Expense 125000 89000 105000 81000 20000 Unfavourable 8000 Unfavourable Investigate as Variance 7.5 exceeds 8000 2.5 No Investigation Investigate as Variance 10 exceeds 8000 4 No Investigation Investigate as Variance 6 exceeds 8000 0.2 No Investigation O No Investigation Investigate as Variance 5.8 exceeds 8000 5 EBIT(3-4) 6 Interest Expense 7 Income Tax 36000 3850 10500 24000 3450 10500 12000 Unfavourable 400 Unfavourable O No Change 8 Net Profit(5-6-7) 21650 10050 11600 Unfavourable