Question

Melton Enterprises manufactures tires for the Formula 1 motor racing circuit. For August 2017, it budgeted to manufacture and sell 3,300 tires at a variable cost of $75 per tire and total fixed costs of $54,500. The budgeted selling price was $111 per tire. Actual results in August 2017 were 3,200 tires manufactured and sold at a selling price of $113 per tire. The actual total variable costs were $265,600. And the actual total fixed costs were $51,000.

Requirement 1. Prepare a performance report that uses a flexible budget and a static budget.

Begin with the actual​ results, then complete the flexible budget columns and the static budget columns. Label each variance as favorable or unfavorable. ​ (For variances with a​ $0 balance, make sure to enter​ "0" in the appropriate field. If the variance is​ zero, do not select a​ label.)

Actual Results Flexible-Budget Variances Flexible Budget Sales-Volume Variances Static Budget Units sold Revenues Variable costs Contribution margin Fixed costs JODI Operating income

Requirement 2. Comment on the results in requirement 1. (choices are the words in bold, pick one for each as you go along the statements).

The total static-budget variance in operating income is $ (input amount), (F, U). There is a(n) (favorable, unfavorable)

total flexible-budget variance and a(n) (favorable, unfavorable) sales-volume variance. The sales-volume variance arises solely because actual units manufactured and sold were (less, more) than the budgeted 3,300 units. The flexible-budget variance in operating income is due primarily to the (decrease, increase) in unit variable costs.

Answer 1

Req 1 Flexible Budget performance Report Flexible Budget Variances Actual Results 3,200 Flexible Budget 3,200 Sales-Volume Variances 100 Static Budget 3,300 Units Sold NONE Less F Revenue Variable Costs Contribution Margin Fixed Cost Net operating Income $ $ $ $ $ 361,600 $ 265,600 $ 96,000 $ 51,000 $ 45,000 $ 6,400 25,600 19,200 3,500 15,700 F U U F U $ $ $ $ 355,200 $ 240,000 $ 115,200 $ 54,500 $ 60,700 $ 11,100 7,500 3,600 . 3,600 $366,300 $247,500 $118,800 $ 54,500 $ 64,300 Less NONE U Flexible Bugdet Variance = Actual Results - Flexible Budget, (Revenue variance is Favorable when actual is more than flexible and expenses variance are favorable when actual expense is less than flexible expenses and vice-versa. Sales-Volume Variance = Flexible Budget-Static Budget, (Revenue variance is Favorable when Flexible is more than Static Budget and expenses variance are favorable when Flexible expense is less than Static Budget expenses and vice-versa. Working Revenue Variable Costs Fixed Cost Actual Results Flexible Budget| Static Budget 3200 x 113 3200 x 111 3300 x 111 given 3200 x 75 3 300 x 75 given given given The total static budget variance in operating income is $ 19300 Unfavorable. Thers is an unfavorable total flexible budget variance and an unfavourable sales volume variance. The sales volume variance arises solely because actual units manufactured and sold are less than the budgeted 3300 units. The flexible budget variance in operating income is due increase in unit variable cost. Req 2 Totala static budget = flexible budget + sales volume variance = 15700 U + 3600 U = 19300 U