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Step 2:
Determine the actual quantity of output.
In the year 2004, 10,000 suits were
produced and sold.
Step 3:
Determine the flexible budget for revenues.
$155 × 10,000 = $1,550,000
Steps in Developing
Flexible Budgets
Step 4:
Determine the flexible budget for costs.
Variable costs: 10,000 × $115 = $1,150,000
Fixed costs 286,000
Total costs $1,436,000
Variances
Actual results
operating income
Flexible-budget $100,000
variance
$14,000 U Flexible-budget
operating income
$114,000
Flexible-Budget Variance
Actual Budgeted
Amount Amount
Selling price $160 $155
Variable cost 120 115
Contribution margin $ 40 $ 40
Flexible-Budget Variance
Why is the flexible-budget variance $14,000 U?
Selling-price variance $50,000 F
Actual variable costs exceeded
flexible budget variable costs 50,000 U
Actual fixed costs exceeded
flexible budget fixed costs 14,000 U
Total flexible-budget variance $14,000 U
Sales-Volume Variance
Sales-Volume Variance
(Level 2) in (000)
Flexible Static Sales-Volume
Budget Budget Variance
Suits 10 13 3U
Revenue $1,550 $2,015 $465 U
Variable costs 1,150 1,495 295 F
Contr. margin $ 400 $ 520 $120 U
Fixed costs 286 286 0
Operating income $ 114 $ 234 $120 U
Sales-Volume Variance
Actual quantity sold: 10,000 suits
Flexible-budget
operating income
Sales-volume $114,000
variance
$120,000 U Static-budget
operating income
$234,000
Sales-Volume Variance
Actual sales unit – Master budgeted sales units
13,000 – 10,000 = 3,000
×
Budgeted contribution margin per unit $40
=
Total sales-volume variance $120,000 U
Budget Variances
Static-budget
Level 1 variance
$134,000 U
Flexible-budget Sales-volume
Level 2 variance variance
$14,000 U $120,000 U
Learning Objective 3
Actual AQ × BP BQ × BP
Cost 42,500 × $16.25 40,000 × $16.25
$677,875 $690,625 $650,000
$12,750 F $40,625 U
$27,875 U
Flexible Budget Labor
Variance Example
Actual AQ × BP BQ × BP
Cost 21,500 × $13.00 20,000 × $13.00
$277,350 $279,500 $260,000
$2,150 F $ 19,500 U
$17,350 U
Variance Analysis
Level 1
Static-budget variance
Materials $167,125 F
Labor 60,650 F
Total $227,775 F
Level 2 Level 2
Flexible-budget variance Sales-volume variance
Materials $27,875 U Materials $195,000 F
Labor 17,350 U Labor 78,000 F
Total $45,225 U Total $273,000 F
Variance Analysis
Level 2
Flexible-budget variance
Materials $27,875 U
Labor 17,350 U
Total $45,225 U
Level 3 Level 3
Price variance Efficiency variance
Materials $12,750 F Materials $40,625 U
Labor 2,150 F Labor 19,500 U
Total $14,900 F Total $60,125 U
Learning Objective 6
Static Actual
Budget Amounts
Units produced and sold 18,000 15,660
Batch size 180 174
Number of batches 100 90
Material-handling
labor-hours per batch 5.00 5.20
Flexible Budgeting and
Activity-Based Costing
Static Actual
Budget Amounts
Total labour-hours 500 468
Cost per material-handling
labor-hour $14.00 $14.50
Total material-handling
labor cost $7,000 $6,786
Flexible Budgeting and
Activity-Based Costing