CHAPTER 7
FLEXIBLE BUDGETS, DIRECT-COST VARIANCES, AND
MANAGEMENT CONTROL
7-16
(20–30 min.)
Flexible budget.
Actual
Results
(1)
Flexible-
Budget
Variances
(2) = (1) – (3)
Flexible
Budget
(3)
Sales-Volume
Variances
(4) = (3) – (5)
Static
Budget
(5)
Units sold
2,800
g
0
2,800
200
U
3,000
g
Revenues
$313,600
a
$
5,600 F
$308,000
b
$22,000 U
$330,000
c
Variable costs
229,600
d
22,400
U
207,200
e
14,800
F
222,000
f
Contribution margin
84,000
16,800 U
100,800
7,200 U
108,000
Fixed costs
50,000
g
4,000
F
54,000
g
0
54,000
g
Operating income
$
34,000
$12,800
U
$
46,800
$
7,200
U
$
54,000
$12,800 U
$
7,200 U
Total flexible-budget variance
Total sales-volume variance
$20,000 U
Total static-budget variance
a
$112 × 2,800 = $313,600
b
$110 × 2,800 = $308,000
c
$110 × 3,000 = $330,000
d
Given. Unit variable cost = $229,600 ÷ 2,800 = $82 per tire
e
$74 × 2,800 = $207,200
f
$74 × 3,000 = $222,000
g
Given
2.
The key information items are:
Actual
Budgeted
Units
Unit selling price
Unit variable cost
Fixed costs
2,800
$
112
$
82
$50,000
3,000
$
110
$
74
$54,000
The total static-budget variance in operating income is $20,000 U. There is both an unfavorable
total flexible-budget variance ($12,800) and an unfavorable sales-volume variance ($7,200).
The unfavorable sales-volume variance arises solely because actual units manufactured
and sold were 200 less than the budgeted 3,000 units. The unfavorable flexible-budget variance
of $12,800 in operating income is due primarily to the $8 increase in unit variable costs. This
increase in unit variable costs is only partially offset by the $2 increase in unit selling price and
the $4,000 decrease in fixed costs.
7-1