Question

As the new accountant for Cohen & Co., you have been asked to provide a succinct analysis of financial performance for the year just ended. You obtain the following information that pertains to the company’s sole product:

	Actual			Master (Static) Budget
Units sold		25,000			30,000
Sales	$	402,000		$	456,000
Variable costs		232,000			276,000
Fixed costs		161,000			141,000

Required:

1. What was the actual operating income for the period?

2. What was the company’s master (static) budget operating income for the period?

3. (a) What was the total master (static) budget variance, in terms of operating income, for the period? (b) Is this variance favorable (F) or unfavorable (U)? (Note: The total master (static) budget variance is also referred to as the total operating income variance for the period.) (If a variance has no amount, select "None" in the corresponding dropdown cell.)

4. The total master (static) budget variance for a period can be decomposed into a total flexible-budget variance and a sales volume variance. (a) What was the total flexible-budget variance for the period? (b) Was this variance favorable (F) or unfavorable (U)? (c) What was the sales volume variance for the period? (d) Was this variance favorable (F) or unfavorable (U)? (Do not round your intermediate calculations. If a variance has no amount, select "None" in the corresponding dropdown cell.)

1. Actual operating income Master budget operating income Total master budget variance Total flexible-budget variance Sales volume variance

Answer 1

Sol Given data. The new accountant for cohen and co., been asked pooride a succinct analysis of Perfoom cance for the year just ended. you have financial Actual master (Static) Budget. $ 30.000 Uruts sold $ 95.000 Soles. $ 402.000 $ 456.000 $ 276.000 variable costs $ 232.000 $ 161.000. $ 141.000 Fixed costs. (1) The actual operating income for the period Actual operating income. Sales - Variable costs fined costs - 402.000 - 232.000 - 161.000 - $ 9.000 Actual operating income = $9.000

2. The company's master (staric) budget operating income for the period. master budget operating income a Sales variable COSS - fixed costs. - $456-000-976.000 - 141.000 $ 39.000. masted budget operating income - $39.000 cay The total master static) budget variance in terms operating income for the period. of operating income master budget variance = Actual operating income - master budget operating in come - $ 9000 - $39.000 - $ 30.000 master budget variance - $ 30.000 (6) this rasiance favourable or unfavorable. I This roriance is un favorables

The total master (static) budget variance too a can be de composed into a total flexible. budget variance and sales volume variance. mostey budget selling Price per unit > master budget sales master budget units sold. 456.000 30-000 = $15.2. selling price pod wrat a master budget 15.2 → master budget variable costs = master budget variable costs master budget writs sold. 26.000 30.000 - $9.2 master budget variable costs $9.27 and selling - Flexible budget uses the actual units Price, costs from master budget.

Fleuble budget operating income - Sales - Variable costs - Fixed costs. 20.000X15.9)-(25.000 X 9.1) – 141.000 380D0D - 230000 -141.000 = $ 9000 Flexible budget operating in come - $9000) @ Flexible budget variance - Actuced budget - flexible budget. $9.000 - $9.000 ] Flexible budget variance - None) (b) this variance favorable () or un favorable This variance is none). © The sales volume variance of the periode Sales volume vorionce : flexible budget - Static budget • $9.000 - $39.000 $ 30.000 Sales volume variance = $ 30.000

5 a This variance favorable (E) or unfavorable (0) This variance is un favorable ] 1. Actual operating income $ 9.000 $ 39.000 2. master budget oferooting income.. 3. Total master budget vonia -nce 4 Total flesseble-budget variance $ 30.000 I $ 0 (none). Sales volume variance $ 30.000