Answer -
1 | Actual operating income | $26000 | |
2 | Master budget operating income | $44000 | |
3 | Total master budget variance | ($18000) | Unfavorable |
4 | Total flexible budget variance | $0 | None |
Sales volume variance | ($18000) | Unfavorable |
Calculation:
1 and 2.
Actual operating income and Master (Static) budget operating income:
Actual | Master (Static) Budget | |
Units sold | 45000 | $50000 |
Sales | $390000 | $450000 |
Less: Variable costs | $214000 | $270000 |
Contribution | $176000 | $180000 |
Less: Fixed costs | $150000 | $136000 |
Operating income | $26000 | $44000 |
3. Total master budget variance:
= Actual operating income - Master budget operating income
= $26000 - $44000
= ($18000) Unfavorable
4. Total flexible budget variance:
Actual | Master (Static) Budget | Flexible Budget | |
Units sold | 45000 | 50000 | 45000 |
Sales | $390000 | $450000 (100%) | $405000 (100%) |
Less: Variable costs | $214000 | $270000 (60%) | $243000 (60%) |
Contribution | $176000 | $180000 | $162000 |
Less: Fixed costs | $150000 | $136000 | $136000 |
Operating income | $26000 | $44000 | $26000 |
Here,
Master budget selling price per unit = $450000 / 50000 = $9
So, Flexible budget sales = 45000 * $9 = $405000
Flexible budget variable costs = $405000 * 60% = $243000
So,
Total flexible budget variance = Actual operating income - Flexible budget operating income
Total flexible budget variance = $26000 - $26000
Total flexible budget variance = $0
And
Sales volume variance:
= Flexible budget operating income - Master budget operating income
= $26000 - $44000
= ($18000) Unfavorable
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