# Week 11 Tutorial - Flexible budgets and direct cost variances(1)

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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)