CHAPTER7-ASSIGNMENT.docVIP

CHAPTER 7 FLEXIBLE BUDGETS, VARIANCES, AND MANAGEMENT CONTROL: I 7-23 Flexible budget preparation and analysis. 1. Solution: Variance Analysis for Bank Management Printers for September 2004 Level 1 Analysis Actual Results (1) Static-Budget Variances (2) = (1) – (3) Static Budget (3) Units sold Revenue 12,000 $252,000a 3,000 U $ 48,000 U 15,000 $300,000c Variable costs 84,000d 36,000 F 120,000f Contribution margin Fixed costs Operating income 168,000 150,000 $ 18,000 12,000 U 5,000 U $ 17,000 U 180,000 145,000 $ 35,000 $17,000 U Total static-budget variance 2. Level 2 Analysis Actual Results (1) Flexible- Budget Variances (2) = (1) – (3) Flexible Budget (3) Sales Volume Variances (4) = (3) – (5) Static Budget (5) Units sold 12,000 0 12,000 3,000 U 15,000 Revenue $252,000a $12,000 F $240,000b $60,000 U $300,000c Variable costs 84,000d 12,000 F 96,000e 24,000 F 120,000f Contribution margin 168,000 24,000 F 144,000 36,000 U 180,000 Fixed costs 150,000 5,000 U 145,000 0 145,000 Operating income $ 18,000 $19,000 F $ (1,000) $36,000 U $ 35,000 $19,000 F $36,000 U Total flexible-budget Total sales-volume variance variance $17,000 U Total static-budget variance a 12,000 × $21 = $252,000 d 12,000 × $7 = $ 84,000 b 12,000 × $20 = $240,000 e 12,000 × $8 = $ 96,000 c 15,000 × $20 = $300,000 f 15,000 × $8 = $120,000 3. Level 2 analysis provides a breakdown of the static-budget variance into a flexible-budget variance and a sales-volume variance. The primary reason for the static-budget variance being unfavorable ($17,000 U) is the reduction in unit volume from the budgeted 15,000 to an actual 12,000. One explanation for this reduction is the increase in selling price from a budgeted $20 to an actual $21. Operating management was able to reduce variable costs by $12,000 relative to the flexible budget. This reduction could be a sign of efficient mana