Question

Check It Off Printers, Inc., produces luxury checkbooks with three checks and stubs per page. Each checkbook is designed for an individual customer and is ordered through the customer's bank. The company's operating budget for September 2017 included these data: (Click the icon to view the operating budget and actual results.) The executive vice president of the company observed that the operating income for September was much lower than anticipated, despite a higher-than-budgeted selling price and a lower-than-budgeted variable cost per unit. As the company's management accountant, you have been asked to provide explanations for the disappointing September results. Check It Off develops its flexible budget on the basis of budgeted per-output-unit revenue and per-output-unit variable costs without detailed analysis of budgeted inputs.

Answer 1

Answer to Requirement 1:

Check It Off Printers, Inc. Static-Budget Variance For the Month Ended September 30, 2017 Actual Static Static Budget Result Budget Variance Number of checkbooks 10200 13000 Sales revenue Variable expenses Contribution margin Fixed expenses Net operating income 234600 71400 163 200 124900 38300 273000 104000 169000 120000 49000 38400 32600 5800 4900 10700 U

Answer to Requirement 2:

Check It Off Printers, Inc. Flexible-Budget Variance For the Month Ended September 30, 2017 Actual Flexible Flexible Budget Result Budget Variance Number of checkbooks 10200 10200 Sales revenue Variable expenses Contribution margin Fixed expenses Net operating income 234600 71400 163 200 124900 38300 214200 81600 13 2600 120000 12600 20400 10200 30600 4900 25700 F

Answer to Requirement 3:

Check It Off prefers flexible-budget-based variance over static-budget-based variance because it provides comparison between actual result and flexible budget at actual level of output, whereas, static-budget-based variance provides comparison between actual result at actual level of output and static budget at budgeted level of output.