Question

A. Complete a flexible budget for 20,000 units produced. Use the following information at a production level of 15,000 units to complete the flexible budget:

Budgeted units	15,000
Revenue	$1,500,000
Expenses:
Wages and Salaries ($200,000 + $10Q)	$350,000
Utilities (variable)	$300,000
Depreciation (fixed)	$200,000
Total expenses	$850,000
Net operating income	$650,000

Q = units produced

Budgeted units	20,000
Revenue
Expenses:
Wages and Salaries ($200,000 + $10Q)
Utilities (variable)
Depreciation (fixed)
Total expenses
Net operating income

B. Calculate the activity variances and the revenue and spending variances using the information from #1 above and the following actual cost results at 20,000 units produced:

Actual Units	20,000
Revenue	$1,950,000
Expenses:
Wages and Salaries	$410,000
Utilities	$395,000
Depreciation	$207,000
Total expenses	$1,012,000
Net operating income	$938,000

Actual Units	Actual Results	Revenue & Spending Variances	Flexible Budget	Activity Variances	Planning Budget
Revenue
Expenses:
Wages and Salaries
Utilities
Depreciation
Total expenses
Net operating income

Answer 1

Sol: PART - A : Computation of Flexible budget for 20000 Units (based on data of 15000 units) is as follows :-

Budgeted units	20000
Revenue	$ 2000000
Expenses:
Wages & salaries ($ 200000 + 10Q)	$ 400000
Utilities (Variable)	$ 400000
Depreciation (Fixed)	$ 200000
Total Expenses	$ 1000000
Net Operating Income	$ 1000000

* Wages & Salaries calculation = $ 200000 + $10 (20000) = $ 200000 + $ 200000 = $ 400000

PART - B :- Calculation & analysis of Activity variances & revenue-spending variances based on different levels of activity :-

Explanation :- Variance of Revenue & spending is calculated from Actual results based on 20000 units level with the flexible budget figures of 20000 units. So in the end Net Operating Income of $ (62000) shows that there is a loss of $ 62000 as the achieved level should have been $ 10,00,000, but actually achieved is only $ 938000.
Similarly, Activity variance shows the comparision between 2 different levels of activity i.e Planned V/s Flexible budget at 15000 & 20000 units level. & same way the numbers are analysed between both the levels of activity.