Week 11 Tutorial
Chapter 11 – Flexible budgets and direct cost variances
11-24, 11-29, 11-30
*Correction to 11-30 part 2: “
3780
kilograms were used” (not 1800 kilograms).
11-24 Flexible budget, working backwards
1.
Variance analysis for Aspects Ltd for the year ended December 31, 2015
Actual
Results
(1)
Flexible-
Budget
Variances
(2)=(1)
(3)
Flexible
Budget
(3)
Sales-
Volume
Variances
(4)=(3)
(5)
Static
Budget
(5)
Units sold
130 000
0
130
000
5
000
F
125 000
Revenues
$715 000
A$278 200 F
A$436 800
a
A$16 800 F
A$420 000
Variable costs
515
000
265
400
U
249
600
b
9
600
U
240
000
Contribution
margin
200 000
12 800
F
187 200
7 200 F
180 000
Fixed costs
140
000
20
000
U
120
000
0
120
000
Operating profit
A$
6
0 000
A$
7
200
U
A$6
7
200
A$7
200
F
A$
60
000
a
130 000 × A$3.36 = A$436 800; A$420 000
125 000 = A$3.36
b
130 000 × A$1.92 = A$249 600; A$240 000
125 000 = A$1.92
2.
Actual selling price:
A$715 000
=
A$5.50
Budgeted selling price:
420 000
=
A$3.36
Actual variable cost per unit:
515 000
=
A$3.96
1
A$7200 U
A$7200 F
Total sales volume variance
A$0
Total static-budget variance

Budgeted variable cost per unit:
240 000
=
A$1.92
3.
A zero total static-budget variance may be due to offsetting total flexible-
budget and total sales-volume variances. In this case, these two variances
exactly offset each other:
Total flexible-budget variance
$7200 Unfavourable
Total sales-volume variance
$7200 Favourable
A closer look at the variance components reveals some major deviations from plan.
Actual variable costs increased from A$1.92 to A$3.96, causing an unfavourable flexible-
budget variable cost variance of A$265 400. Such an increase could be a result of, for
example, a jump in direct material prices. Aspects was able to pass most of the increase
in costs onto their customers—actual selling price increased by 63.7% [(A$5.50 – A$3.36)