Question

Connolly Enterprises manufactures tires for the Formula 1 motor racing circuit For August 2017, it budgeted to manufacture and sell 2.900 tires at a variable cost of $75 per tire and total fixed costs of $53,000. The budgeted selling price was $116 per tire. Actual results in August 2017 were 2,600 tires manufactured and sold at a selling price of $117 per tire. The actual total variable costs were $215,800, and the actual total fixed costs were $50,000 Read the requirements

Answer 1

	Unit costs	Actual	Flexible budget	Variances	Label	Static Budget	Actual	Variances	Label
Units sold		2,600	2,600			2,900	2,600
Revenue		304,200	301,600	2,600	Favorable	336,400	304,200	(32,200)	Unfavorable
Variable cost	75	215,800	195,000	20,800	Unfavorable	217,500	215,800	(1,700)	Favorable
Contribution margin		88,400	106,600	(18,200)	Unfavorable	118,900	88,400	(30,500)	Favorable
Fixed costs		50,000	53,000	(3,000)	Favorable	53,000	50,000	(3,000)	Favorable
Operating income		38,400	53,600	(15,200)	Unfavorable	65,900	38,400	(27,500)

As compared with actual vs flexible, Revenue and fixed costs are favorable but because of high variable cost the actual operating income is unfavorable.

As compared with static vs actual, all the costs are favorable but due to unfavorable revenue the actual operating income is unfavorable.