Question

The Groton Company produces engine parts for car manufacturers. A new accountant intern at Groton has accidentally deleted the calculations on the​ company's variance analysis calculations for the year ended December​31,2017. The following table is what remains of the data.

Performance Report
Year Ended December 31, 2017
	Actual	Flexible-Budget	Flexible	Sales-Volume	Static
	Results	Variances	Budget	Variances	Budget
Units sold	106,000				97,000
Revenues (sales)	$683,700				$315,250
Variable costs	430,000				145,500
Contribution margin	253,700				169,750
Fixed costs	178,950				95,000
Operating income	$74,750				$74,750

PrintDone

1.	Calculate all the required variances.​ (If your work is​ accurate, you will find that the total​ static-budget variance is​ $0.)
2.	What are the actual and budgeted selling​ prices? What are the actual and budgeted variable costs per​ unit?
3.	Review the variances you have calculated and discuss possible causes and potential problems. What is the important lesson learned​ here?

Answer 1

1
	Groton company
	Flexible budget performance report
	For the month ended December 31, 2017
		Budget amount per unit	Actual Results	Flexible Budget Variance		Flexible Budget	Sales Volume Variance		Static Budget
	Units		1,06,000			1,06,000			97,000
	Sales Revenue	$         3.25	$ 6,83,700	$3,39,200	F	$     3,44,500	$ 29,250	F	$3,15,250
Less:	Variable Expenses	$         1.50	$ 4,30,000	$2,71,000	U	$     1,59,000	$ 13,500	U	$1,45,500
	Contribution margin		$ 2,53,700	$   68,200	F	$     1,85,500	$ 15,750	F	$1,69,750
Less:	Fixed Expenses		$ 1,78,950	$   83,950	U	$        95,000	$           -	None	$    95,000
	Operating Income		$     74,750	$   15,750	U	$        90,500	$ 15,750	F	$    74,750
2
			Actual Results	Static Budget
(i)	Units		1,06,000	97,000
(ii)	Sales Revenue		$ 6,83,700	$3,15,250
(ii) / (i)	Selling Price per unit		$         6.45	$        3.25
(iii)	Variable Expenses		$ 4,30,000	$1,45,500
(iii) / (i)	Variable cost per unit		$         4.06	$        1.50
3	As shown above, selling 9,000 more units than static budget i.e selling (97,000 + 9,000 = 106,000 units) , there is no change in operating income under static budget and Actual results whereas, on comparing Actual results with flexible budget there the operating income will decrease by $15,750.