Question

HW CH23 Question 1: s hons Phone Technologies manufactures capacitors for collarbatestions and other communications applications. The company's July 2014 febb Output levels of 7.500.000 and 11 000 units The static budget was based on expected sales of 9.000 units Phone Technologies Flexible Budget For the Month Ended July 31, 2014 Budget Amount Per Unit By Units 7.500 9.000 22 $ 165,000 5 198,000 $ 82.500 99.000 82.500 99.000 57.000 57.000 25.500 $ 42,000 $ Sales Revenue Vanable Expenses Contribution Margin Fixed Expenses 11,000 242.000 121.000 121,000 57.000 64,000 Operating Income The company sold 11.000 units during July, and its actual operating income was as follows: Phone Technologies Income Statement For the Month Ended July 31, 2014 Sales Revenue $ 249,000 Variable Expenses 125,100 Contribution Margin 122.900 58.000 Fired Expenses $ 64,900 Operating Income Requirements 1. Prepare a flexible budget performance report for July 2. What was the effect on Phone's operating income of selling 2.000 units more than the static budget level of sales? 3. What is Phone's static budget variance? 4. Explain why the flexible budget perfomance report provides more useful information to Phone's managers than the simple static budget can Phone's managers draw from this performance report? Wate

Answer 1

1.

Units	Budgeted amounts per unit	Actual results	Flexible budget variance		Flexible budget	Sales volume variance		Static Budget
		11000			11000	2000	F	9000
Sales revenue	22	249000	7000	F	242000	44000	F	198000
Variable expenses	11	126100	5100	U	121000	22000	U	99000
Contribution margin		122900	1900	F	121000	22000	F	99000
Fixed expenses		58000	1000	U	57000	0		57000
Operating income		64900	900	F	64000	22000	F	42000

2. Increase in net profit by 22000 due to additional sales of Rs.22000

3. Static budget variance = 64900 - 42000 = 22900

4. Reasons why flexible budget performance provides more information:

A favorable sales revenue flexible budget variance means the sale price was higher than planned.

A favorable sales volume variance reveals if higher profits are earned due to increase in units sold.

The variances suggest that the marketing department did a good job. They sold more units than anticipated and at a higher price than expected.