Question

Static and Flexible Budgets Graham Corporation used the following data to evaluate its current operating system. The company sell items for $10 each and used a budgeted selling price of $10 per unit Actual Budgeted Units sold 1.480.000 1.500.000 Variable costs 2.815.000 3.000.000 Feed costs 2.490,000 2.425,000 a. Prepare the actual income statement, flexible budget and static budget. Do not use negative signs with any of your answers below Artual Results Filet Static Budget 142.000 100.000 1.500.000 Revenues Variable costs 2815.000 2,964.000 3.000.000 Contribution margin 12.005.000 11.156.000 12.000.000 Find costs Operating income 5 For questions b, c, and d, do not use negative signs with your answers. Select either Ufor Unfavorable or for favorable using the drop down box next to each of your variance answers b. What is the static-budget variance of revenues? $ 180,000 UO What is the flexible budget variance for variable costs? $149,000 F. d. What is the flexible budget variance for foxed costs?

Answer 1

Ans. A		Actual Results	Flexible Budget	Static Budget
	Units sold	1,482,000	1,482,000	1,500,000
	Revenues	$14,820,000	$14,820,000	$15,000,000
	Variable costs	$2,815,000	$2,964,000	$3,000,000
	Contribution margin	$12,005,000	$11,856,000	$12,000,000
	Fixed costs	$2,490,000	$2,425,000	$2,425,000
	Operating income	$9,515,000	$9,431,000	$9,575,000
Ans. B	Static budget variance of revenue = Static budgeted revenue - Actual revenue
		$15,000,000 - $14,820,000
		$180,000	Unfavorable
	*If actual revenue is less than the budgeted then the variance becomes unfavorable.
Ans. C	Flexible budget variance of Variable cost = Flexible budgeted variable cost - Actual variable cost
		$2,964,000 - $2,815,000
		$149,000	Favorable
	*Actual variable cost is less than flexible budget so the variance is favorable.
Ans. D	Flexible budget variance of Fixed cost = Actual Fixed cost - Flexible budgeted Fixed cost
		$2,490,000 - $2,425,000
		$65,000	Unfavorable
	*Actual fixed cost is greater than flexible budget so the variance is unfavorable.
	Working Notes:
	*Calculations for Sales:
		Actual results	Flexible budget	Static budget
	Sales	1,482,000 * $10	1,482,000 * $10	1,500,000 * $10
	*Calculations for Variable cost for Flexible Budget :
	Variable cost for Flexible budget = Budgeted variable cost / Budgeted units sold * Actual units sold
		$3,000,000 / 1,500,000 * 1,482,000
		$2,964,000
	*Fixed cost in flexible budget remain same as Static budget.