Question

Four Flags is a retail department store. On January 1, 2019, Four Flags' accountants used the following data to develop the master budget for Four Flags for 2019:

Cost	Fixed	Variable (per unit sold)
Cost of Goods Sold	$0	$5.60
Selling and Promotion Expense	$220,000	$0.80
Building Occupancy Expense	$180,000	$0.20
Buying Expense	$160,000	$0.30
Delivery Expense	$100,000	$0.10
Credit and Collection Expense	$66,000	$0.02

Expected unit sales in 2019 were 1,300,000, and 2019 total revenue was expected to be $13,000,000. Actual 2019 unit sales turned out to be 1,100,000, and total revenue was $11,000,000. Actual total costs in 2019 were:

Cost of Goods Sold	$6,000,000
Selling and Promotion Expense	$1,000,000
Building Occupancy Expense	$370,000
Buying Expense	$550,000
Delivery Expense	$160,000
Credit and Collection Expense	$20,000

Required
Compute the flexible budget variances in 2019 for the following two cost items (NOTE: enter favorable variances as positive numbers and unfavorable variances as negative numbers):

  Delivery Expense

  Selling and Promotion Expense   

Answer 1

Ans. 1	*Flexible budget variance is equal to the difference between flexible budget and actual results. So, first of all
	we will calculate the flexible budget for delivery expenses.
	Flexible budget for delivery expense = Fixed cost + (Actual units sold * Variable cost per unit)
		$100,000 + (1,100,000 * $0.10)
		$100,000 + $110,000
		$210,000
	Flexible budget variance =   Flexible budget - Actual results
		$210,000 - $160,000
		$50,000	Favorable
Ans. 2	We need to calculate flexible budget for selling and promotion expense first.
	Flexible budget for selling and promotion expense = Fixed cost + (Actual units sold * Variable cost per unit)
		$220,000 + (1,100,000 * $0.80)
		$220,000 + $880,000
		$1,100,000
	Flexible budget variance =   Flexible budget - Actual results
		$1,100,000 - $1,000,000
		$100,000	unfavorable
	*Increase in cost from flexible budget to actual results = Unfavorable variance
	*Decrease in cost from flexible budget to actual results = Favorable variance