Question

Please help with number 6, also i am confused with U or F for numbers 1-5, please check the letters if you can. Thank you.

1. Prepare a flexible budget performance report for Production that compares actual and allowed costs. Production Department Flexible Budget Performance Report For Month of October Flexible Flexible Budget Budget Designatio Actual costs Cost Variances n U or F 825 800 25 U Units Direct Materials Direct Labor Variable Manufacturing overhead Fixed Manufacturing Total $39,600 14,850 13,200 39,000 106,650 $38,400 14,400 12,800 39,000 $104,600 1200 F 450 F 400 F $ $ 2,050 F 2. Prepare a flexible budget performance report for selling and distribution that compares actual and allowed costs. Selling and Distribution Cost Center Flexible Budget Performance Report For Month of October Flexible Flexible Budget Budget Designatio Actual costs Cost Variances n U or F 825 800 25 U Units 1125 F Selling and Distribution: Variable Fixed Total 37,125 31,000 68,125 $ 36,000 31,000 - $ 67,000 $ 1,125 F 3. Determine the revenue variance. Actual Budget Revenue Variance $ $ $ 230,000 195,200 34,800 F 4. Determine the sales price variance. Actual sale price per unit Budgeted sales price per unit Actual units sold Sales Price Variance $279 $244 825 28,700 F 5. Determine the sales volume variance. Sales volume variance $6,100 F 6. Explain to management the areas that should be investigated. You should also include why the actual income is less than budgeted Explain why you picked these areas to look at.

Answer 1

U denotes UNFAVOURABLE VARIANCE

F denotes FAVOURABLE VARIANCE.

Flexible budget is an adjusted form of Master budget, which is more or less adjusted towards actuals.

In the above example, the main investigation is with regards to "Designation" of "U&F". Because Revenue units actually increased as compared to budgeted; hence it is Favourable variance. Variable expenses like Direct Material, Direct Labor and Variable Overheads are directly proportionate to increase in volume; hence the same has also been increased, which is Unfavourable variance. But reason could be as it is directly proportionate to the units produced and sold.

Income statement for Actuals vs budget as below:

Description	Budgeted	Actual
Revenue	195,200	230,175
Less: Cost of Goods Sold (COGS)
Direct Material	(38,400)	(39,600)
Direct Labor	(14,400)	(14,850)
Manufacturing OH	(12,800)	(13,200)
Selling & Administrative OH	(36,000)	(37,125)
Gross Profit	93,600	125,400
Less: Non-Operating Expense
Manufacturing OH	(39,000)	(39,000)
Selling & Administrative OH	(31,000)	(31,000)
Net Income	23,600	55,400

Actual income is more as compared to budgeted. It is mainly because of increase in volume of units sold, whereas fixed expenses remains same irrespective of the volume. Thus, overall the actual results are more Favourable as compared to budgeted.