Question

Q.3) (24 points) The Table Company manufactures tables for schools. The 20XX operating budget is based on sales of 40,000 units at $50 per table. Operating income is anticipated to be $120,000. Budgeted variable costs are $32 per unit, while fixed costs total $600,000. Actual income for 20XX was a surprising $354,000 on actual sales of 42,000 units at $52 each. Actual variable costs were $30 per unit and fixed costs totaled $570,000. Prepare a variance analysis table that presents both flexible-budget and sales-volume variances for units sold, revenue, variable costs, contribution margin, fixed costs, and operating income. State whether theses variances are Favorable (F) or Unfavorable (U).

Answer 1

Table Company Variance Analysis Actual Results 42000 Flexible Budget Variances None Flexible Budget 42000 Sales-Volume Variances Static Budget 2,000 40000 Units Sold $ F F $ $ F F Less Sales Revenue Variable Costs Contribution Margin Fixed Cost Net operating Income U 2,184,000 $ 1,260,000 $ 924,000 $ 570,000 $ 354,000 $ 84,000 84,000 168,000 30,000 198,000 100,000 64,000 36,000 F $ $ $ $ $ $ $ $ 2,100,000 $ 1,344,000 $ 756,000 $ 600,000 $ 156,000 $ F $ 2,000,000 $ 1,280,000 $ 720,000 $ 600,000 $ 120,000 Less F None F 36,000 F While calculating flexible budget actual units sold are used and budgeted per unit cost and per unit revenue is considered. Fixed cost for flexible budget remains same as static budget. Flexible Bugdet Variance = Actual Results - Flexible Budget, (Revenue is Favorable when actual is more than flexible and expenses are favorable when actual expense is less than flexible expenses and vice-versa. Sales- Volume Variance = Flexible Budget-Static Budget, (Revenue is Favorable when Flexible s more than Static Budget and expenses are favorable when Flexible expense is less than Static Budget expenses and vice-versa. Working Revenue Variable Costs Fixed Cost Actual Results 42000 x 52 42000 x 30 570000 Flexible Budget 42000 x 50 42000 x 32 600000 Static Budget 40000 x 50 40000 x 32 600000