Question

Prepare a responsibility report for the Women's Shoes Division assuming (1) the data are for the month anded June 30, 2020, and (2) all data equal budget except variable costs which are $5,780 over budget VAUGHN INC Women's Shoe Division Responsibility Report For the Month Ended June 30, 2020 Difference Favorable Unfavorable Neither Favorable nor Unfavorable Budget Actual Contribution Margin 306340 312120 312120 Unfavorable Controllable Margin Unfavorable Variable costs Unfavorable Sales Neither Favorable nor Unfavorable Controllable Fixed Costs: Neither favorable nor Unfavorable :

Answer 1

Responsibility report of Women's Shoe Division

Particulars	Budget	Actual	Difference	Remarks
Contribution margin	317,900	312,120	5,780	Unfavorable
Controllable margin	202,300	196,520	5,780	Unfavorable
Variable cost	375,700	381,480	(5,780)	Unfavorable
Sales	693,600	693,600	-	Neither favorable nor unfavorable
Controllable fixed cost	115,600	115,600	-	Neither favorable nor unfavorable

Notes - There are no differences in the Sales and Controllable fixed costs between Budgeted and Actual data , Only variable costs incurred are 5,780 over budget (this implies that the budgeted variable cost is lesser than the actual variable cost by 5,780)

Budgeted variable cost = Actual cost - Unfavorable variance

=> 381,480 - 5,780 => 375,700

Unfavorable variance arises when Actual cost are over the budgeted costs and Favorable variance arises when Actual cost are lesser than the budget costs (only in case of costs and not for revenue and profits, in which case it is the opposite)

Budgeted contribution margin = Budgeted Sales (same as actual sales) - Budgeted Variable cost

=> 693,600 - 375,700 => 317,900

Budgeted Controllable margin = Budgeted Contribution - Controllable Fixed cost (same as fixed cost incurred)

=> 317,900 - 115,600 => 202,300