Question

#3 only.

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 8,000 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 3. Discuss implications of these variances on strategic cost management for Brownstone.

Answer 1

Requirement 3:

The The selling price of the company is reduced from $15 to $14 to compete in the market, suggesting that company is pursuing a not differentiation, cost leadership, competitive strategy for the product dealing. However the company is failed to control its operating costs, as indicated by Un-favorable(U) variances for manufacturing and Selling & distribution costs. The excess costs reduces the flexible budget operating income of the period by 95%.

Unless the company can get its costs under control, it will likely not be able compete successfully as a cost leader. The company has Unfavorable selling price and sales volume variances. Even though company reduced its selling price, failed to attain the budgeted sales volume. The strategy of competing through reduced selling prices to gain sales increase has apparently failed.