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Chapter 23: Q17E (page 1310)

Question:Top managers of Marshall Industries predicted 2018 sales of 14,800 units of its product at a unit price of \(9.50. Actual sales for the year were 14,600 units at \)12.00 each. Variable costs were budgeted at \(2.00 per unit, and actual variable costs were \)2.10 per unit. Actual fixed costs of \(48,000 exceeded budgeted fixed costs by \)4,000.

Prepare Marshall’s flexible budget performance report. What variance contributed most to the year’s favorable results? What caused this variance?

Short Answer

Expert verified

Answer

The flexible budget performance reports are prepared as per the data provided which is shown in step 1.

The favorable revenue flexible variance of $36,500 is contributing the most. The variance was favorable as the selling price was higher than the budgeted selling price as per step 2 of the solution.

Step by step solution

01

Preparation of flexible budget


Murphy Company
Flexible Budget Performance Report
For the year ended July 31, 2018

Actual ($)

Flexible Budget ($)

Variance

Flexible Budget ($)


Sales Volume Variance
static budget

Units

14,600

14,600

14,800

Sales Revenue

175,200

36,500 F

138,700

1,900 U

140,600

Variable expenses

-30,660

1,460 U

-29,200

400 F

-29,600

Contribution Margin

144,540

35,040 F

109,500

1,500 U

111,000

Fixed Expenses

-48,000

4,000 U

-44,000

0

-44,000

Operating Income

96,540

31,040 F

65,500

1,500 U

67,000

02

Requirements 2 and 3

The favorable revenue flexible budget variance is $36,500 which has contributed the most to the year’s favorable results.

The variance occurred in favorable as actual selling price per unit is higher in comparison to the budgeted selling price.

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Most popular questions from this chapter

Computing overhead variances

Refer to the Morgan, Inc. data in Short Exercise S23­9. Last month, Morgan reported the following actual results: actual variable overhead, \(10,800; actual fixed overhead, \)2,770; actual production of 7,000 units at 0.20 direct labor hours per unit. The standard direct labor time is 0.25 direct labor hours per unit (1,300 static direct labor hours / 5,200 static units).

Requirements

1. Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.

2. Explain why the variances are favorable or unfavorable.

Interpreting material and labor variances

Refer to your results from Short Exercises S23­6 and S23­7.

Requirements

1. For each variance, who in Martin’s organization is most likely responsible?

2. Interpret the direct materials and direct labor variances for Martin’s management.

Review your results from Problem P23-­28A. Moss’s standard and actual sales price per mug is $3. Prepare the standard cost income statement for July 2018.

Question: What are the two components of the static budget variance? How are they calculated?

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?
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