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QUESTION 1 (40 points) CC Corp estimated the following financial data, for the 2020 production budget: Sales of 122,00o units
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a.

Units Budgeted amounts per unit Actual results Flexible budget variance Flexible budget Sales volume variance Static Budget
125,000 125,000 122,000
Sales revenue 40 4750000 250000 U 5000000 120000 F 4880000
Variable costs 9.9 1312500 75000 U 1237500 29700 U 1207800
Contribution margin 3437500 325000 U 3762500 90300 F 3672200
Fixed expenses 3,000,000 50,000 F 3,050,000 0 3,050,000
Operating income 437500 275000 U 712500 90300 F 622200

b. The flexible budget variances are all unfavorable since the actual selling price is less than the budgeted selling price. Also the variable costs is higher than the budgeted cost per unit. However, only the fixed expenses are less than the budgeted costs. Hence, the managers have done a poor job in controlling the variances i.e. the sales price and variable cost variance. The savings in fixed costs also does not off set the negative contribution variance.

c. Direct material flex budget variance = 50000 F + 90,000 UF = 40,000UF

Direct labor flex budget variance = Total flex variable cost budget variance -Direct material flex budget variance =   75000 - 40000UF = 35000 UF

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