Question

Beta company makes and sells wadgets. Before the start of 2018, Alpha budgeted to produce and sell 24,000 wadgets. However, the company actually ended up producing and selling 27,400 wadgets in 2018. Beta budgeted to sell each wadget for $18, but the actual average selling price for each wadget was $21.50. For variable costs, beta budgeted that each wadget would use $3 of direct material costs, but the actual direct material cost was $2.50 per wadget. Please answer the following questions:

1. What will total sales be in the Flex Budget? (do not use commas)

Use the same information as in Question 1

2. What will total direct material costs be in the Flex Budget?

Use the same information as in Question 1

3. What is the revenue variance (or in other words, the flex budget variance for revenue)? (enter the number itself, not the F or U)

4. For the revenue variance you found in Question 3, was the variance Favorable or Unfavorable?

Answer 1

1	A flexible budget is a budget that adjusts or flexes with changes in volume or activity.
	Total sales in flex budget	= Actual qty sold * budgeted selling price
		=27400*18
		493200

2	Direct material cost in flex budget: Standard qty of raw material at standard purchase price for Actual qty produced/sold.
		=(27400*3)
		82200

3	Revenue variance	it is the difference between budgeted profit for actual qty sold and actual profit
		=(Actual profit - Budgeted profit)actual qty sold
		=(19-15)*27400
		109600 F

Budgeted profit per unit	= (budgeted selling price - budgeted cost per unit)
	=(18-3)
	15
Actual profit per unit	=( actual seling price - actual cost per unit)
	=(21.5-2.5)
	19

4	The variance is favourable, we can already see the actual profit per unit is more than budgeted profit per unit. So the Variance is favourable.