Question

Actual Results Flexible Budget Variance Flexible Budget Sales Volume Static Variance Budget Units 12,000 12,000 15,000 S Sales Revenue $ 2,52,000 12,000 | F | $ 2,40,000 60,000 $3,00,000 Less: Variable Expenses 84,000 12,000F 96,000 24,000 F S 1,20,000 Contribution margin $1,68,000 24,000 $1,44,000 36,000 U $1,80,000 S Less: Fixed Expenses $ 1,50,000 5,000 $1,45,000 None S 1,45,000 Operating Income / (loss) $ 18,000 19,000 FS -1,000 36,000 U S 35,000 Look at the two outside columns - how was the actual operating income compared to the budgeted net income? Looking at just the operating income line, how much of the above varian was due to the number of units sold (look at sales volume variance)? Look at the sales volume variances, how much were sales down from the budgeted amounts? Now look at the variable cost in sales volume variance - how much was aved due to the decrease in units sold?

Answer 1

1). Actual operating income, when compared to budgeted net income, shows that the actual operating income is less by $17,000 which is calculated as:
Variance = Actual operating Income - Static budget Operating Income
= $18,000 - $35,000
= $17,000 U

2). Operating Income variance due to the number of units sold is $36,000 U which is the sales volume variance part, it shows difference in amount due to the change in the number of units sold.

3). As per the sales volume variance, sales were down by $60,000 as compared to the budgeted amount of sales revenue.
i.e. $300,000 - $240,000

4). Variable cost saved due to a decrease in units is $24,000 i.e. sales volume variance of variable expenses.