Question

The following information is available for Brownstone Products Company for the month of July: Units Sales revenue Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative expenses Fixed selling and administrative expenses Master Actual Budget 3,808 4, eea $53,200 $6e, eee 19,00 16,000 16,000 15,000 7,700 8,000 10,000 9,800 Required: 1. What was the total operating income variance for July? (Note: this variance is also called the master (static) budget variance for the period.) Was this variance favorable (F) or unfavorable (U)? 2. Compute the July sales volume variance and the flexible-budget variance for the month, both in terms of contribution margin and in terms of operating income. 4. Prepare pro forma budgets for activities within its relevant range of operations. Prepare a flexible budget for each of the following two output levels: a. 3.750 units. b. 4.150 units. complete this question by entering your answers in the tabs below. < Prev 2 of 2 !!! Next

Answer 1

Solution:

(1)Operating Income Variance

Items	Budgeted(4000 units)	Actual(3800 units)
Sales(A)	60,000	53,200
Variable Cost:
i) Variable Manufacturing expenses	16,000	19,000
ii) Variable Selling and Administration expexpens	8,000	7,700
Total Variable cost(B)	24,000	26,700
Contribution(A-B)	36,000	26,500
Fixed Cost:
i) Fixed manufacturing expenses	15,000	16,000
ii) Fixed selling and administration expenses	9,000	10,000
Total Fixed cost(C)	24,000	26,000
Operating Income (B-C)	12,000	500

Variance = Budgeted income - Actual Income

=12,000-500= 11,500(U)

(2) (i)Sales volume Variance:

=(Actual units sold - Budgeted units sold) x Budgeted price per unit

=(3800-4000)15 = (-200)15 =3000(U)

(ii) Flexible budget Variance:

=Total Budgeted cost- Total Actual Cost

= 48,000 - 52,700 = 4,700(U)

(iii) Contribution margin Variance :

=Actual margin - Budgeted margin

=26,500-36,000 = 9500(U)