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Chapter 23: Q11RQ (page 1305)
Question:How does the static budget affect the cost and efficiency variances?
Answer
The cost and efficiency variances are not affected by the static budget prepared by the company's management
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Question:Explain the difference between a cost standard and an efficiency standard. Give an example of each.
Question:What is a flexible budget performance report?
Calculating flexible budget variances
Complete the flexible budget variance analysis by filling in the blanks in the partialflexible budget performance report for 9,000 travel locks for Grant, Inc.
GRANT, INC. | |||||
Flexible Budget Performance Report (partial) | |||||
For the Month Ended April 30, 2018 | |||||
| ActualResults | Flexible Budget Variance | Flexible Budget | |||
| Units | 9,000 | (a) | 9,000 | ||
Sales Revenue | \(126,000 | (b) | (c) | \)108,000 | |
Variable Costs | \(52,300 | (d) | (e) | \)50,300 | |
Contribution Margin | \(73,700 | (f) | (g) | \)57,700 | |
Fixed Costs | \(16,100 | (h) | (i) | \)14,900 | |
Operating Income | \(57,600 | (j) | (k) | \)42,800 | |
Cell One Technologies manufactures capacitors for cellular base stations and other communications applications. The company’s July 2018 flexible budget shows output levels of 6,000, 7,500, and 9,500 units. The static budget was based on expected sales of 7,500 units.
CELL ONE TECHNOLOGIES Flexible Budget For the Month Ended July 31, 2018 |
Budget Amount per Unit |
Units 6,000 7,500 9,500 |
Sales Revenue \(21 \)126,000 \(157,500 \)199,500 |
Variable Expenses 10 60,000 75,000 95,000 |
Contribution Margin 66,000 82,500 104,500 |
Fixed Expenses 55,000 55,000 55,000 |
Operating Income \(11,000 \)27,500 \(49,500 |
The company sold 9,500 units during July, and its actual operating income was as follows:
CELL ONE TECHNOLOGIES Income Statement For the Month Ended July 31, 2018 |
Sales Revenue \)206,500 |
Variable Expenses 100,100 |
Variable Expenses 106,400 |
Fixed Expenses 56,000 |
Operating Income $504,00 |
Requirements
1. Prepare a flexible budget performance report for July.
2. What was the effect on Cell One’s operating income of selling 2,000 units more than the static budget level of sales?
3. What is Cell One’s static budget variance for operating income?
4. Explain why the flexible budget performance report provides more useful information to Cell One’s managers than the simple static budget variance. What insights can Cell One’s managers draw from this performance report?
Office Plus sells its main product, ergonomic mouse pads, for \(13 each. Its variable cost is \)5.10 per pad. Fixed costs are \(205,000 per month for volumes up to 65,000 pads. Above 65,000 pads, monthly fixed costs are \)250,000. Prepare a monthly flexible budget for the product, showing sales revenue, variable costs, fixed costs, and operating income for volume levels of 45,000, 55,000, and 75,000 pads.
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