Question

Selected data for October for Rio Vista Company is shown below. The variable overhead sales activity variance is $3,000 F.

Flexible budget based on actual sales of 11,900 units:

Revenue $ 117,300

Materials 49,300

Labor 27,200

Variable overhead 17,000

Fixed costs (manufacturing and administrative) 17,900

Required:

a. How many units were budgeted for October in the master budget? (Do not round intermediate calculations.)

b. Recreate the master budget for October. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

Note :

Since the given  variable overhead sales activity variance is favorable thus :

Master budget variable overhead = Flexible budget Variable overhead + Favorable  variable overhead sales activity variance

= $17,000 +  $3,000 F = $20,000.

Therefore % of actual production below master budget production =  $3,000 / $20,000 = 15 %

Answer a :

Required budgeted units = 11,900 units * (100 % - 15 %) = 10,115 units

Answer b.

	Flexible budget [Given] (85 %)	Sales activity variance (15 %)	Master budget (100%)
Revenue	117,300	20,700 U	138,000
Variable costs :
Materials	49,300	8,700 F	58,000
Labor	27,200	4,800 F	32,000
Variable overhead	17,000	3,000 F	20,000
Total variable costs	93,500	16,500 F	110,000
Contribution margin	23,800	4,200 U	28,000
Fixed costs
Manufacturing and administrative	17,900		17,900
Total fixed costs	17,900		17,900
Operating Profits	5,900	4,200 U	10,100