Question

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14-23 Flexible Budgets; Total Operating Income Variance; Breakdown of the Total Operating Income Variance; Spreadsheet Application The following information is available for Brownstone Products Company for the month of July Units Sales revenue Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative expenses Fixed selling and administrative expenses Actual Master Budget 3.800 4,000 $53.200 $60,000 19.000 16,000 16.000 15,000 7,700 5,000 10,000 9,000 Required 1. What was the total operating income variance for July, rounded to the nearest whole dollar? (Note: This variance is also called the master (static) budget variance for the period.) Was this variance favorable (F) or unfavorable (U)? 2. Set up a spreadsheet to compute the July sales volume variance and the flexible-budget variance for the month, both Page 605 in terms of contribution margin and in terms of operating income. Round all dollar amounts to the nearest whole number.

Answer 1

2) Sales volume variance and flexible-budget variance for the month of July: Flexible Budget Sales Volume Master Variance Budget Units [c=e* (3.800/4.000)] (d=c-e) 3.800 200 U $57,000 $3,000 U (e) 4.000 $60.000 Flexible Budget Actual Variance (a) (b=c-a) 3.800 - None Sales revenue $53,200 $3,800 U Less: Variable cost Manufacturing cost $19,000 $3,800 U Selling and administrative cost $7,700 $100 U Total variable costs $26.700 $3,900 U Contribution margin $26,500 $7,700 U Less: Fixed costs: Manufacturing cost $16,000 $1,000 U Selling and admininstrative cost $10,000 $1,000 U Total fixed costs $26,000 $2.000 U Operating income $500 $9,700 U $15,200 $7.600 $22.800 $800 F $400 F $1,200 F $16.000 $8,000 $24.000 $34,200 $1,800 U $36.000 $15,000 $9,000 $24.000 $10,200 SO None SO None SO None $1,800 U $15,000 $9.000 $24,000 $12,000 Sales Volume Variance Contribution margin Operating income $7,700 U $9.700 U Flexible Budget Variance Contribution margin Operating income $1,800 U $1,800 U