Question

Bank Organizer 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 customers bank. The company's preparing budget for September 2017 included this data.

2013 (2 Lumpele) i Data Table The budgeted amounts for September 2017 were: Number of checkbooks 18,000 23 Selling price per book Variable cost per book Fixed costs for the month $ 150,000 The actual results for September 2017 were as follows: 15,800 24 Number of checkbooks produced and sold Average selling price per book Variable cost per book Fixed costs for the month A 155,700 Print Done Clear All

1. Prepare a static-budget- based variance analysis of the September performance.
2. Prepare a flexible-budget-based variance analysis of the September performance.
3. Why might Bank organizer find the flexible budget based variance analysis more informative than the static budget based variance analysis? explain your answer

Answer 1

1. Prepare a static-budget- based variance analysis of the September performance.

	Actual Results	Static Budget Variance		Static Budget
Units sold	15800	2200	U	18000
Sales revenue	(15800*$24)= $379200	(379200-414000)= 34800	U	(18000*$23)= $414000
Less: Variable costs	(15800*$5)= 79000	(79000-108000)= 29000	F	(18000*$6)= 108000
Contribution margin	300200	5800	U	306000
Less: Fixed costs	-155700	(155700-150000)= 5700	U	-150000
Operating income	$144500	$11500	U	$156000

2. Prepare a flexible-budget-based variance analysis of the September performance.

	Actual Results	Flexible Budget Variance		Flexible Budget	Sales Volume Variance		Static Budget
Units sold	15800			15800			18000
Sales revenue	(15800*$24)= $379200	(379200-363400)= 15800	F	(15800*23)= $363400	(363400-414000)= 50600	U	(18000*$23)= $414000
Less: Variable costs	(15800*$5)= 79000	(79000-94800)= 15800	F	(15800*$6)= 94800	(94800-108000)= 13200	F	(18000*$6)= 108000
Contribution margin	300200	31600	F	268600	37400	U	306000
Less: Fixed costs	-155700	(155700-150000)= 5700	U	-150000	0	NONE	-150000
Operating income	$144500	25900	F	$118600	37400	U	$156000

3. Why might Bank organizer find the flexible budget based variance analysis more informative than the static budget based variance analysis? explain your answer

Bank organizer find the flexible budget based variance analysis more informative than the static budget based variance analysis because flexible budget based variance is calculated on the actual number of units sold while static budget based variance is calculated on the budgeted number of units sold. In static budget variance the difference in the operating income is shown as $11500 Unfavorable but in actual if we compare the flexible budget based variance there is $25900 Favorable operating income. That is because of the difference in the number of units sold. In static budget we take the budgeted number of units sold i.e., 18000 units while in flexible budget we take the actual number of units sold i.e., 15800 units. So, the Bank prefer flexible budget based variance over static budget based variance because of the difference in the number of units sold.