Question

In: Accounting

Katy Company produces engine parts for the computer manufacturing company. The following table is the Katy’s...

Katy Company produces engine parts for the computer manufacturing company. The following table is the Katy’s performance report for the year 2016.

Actual Results

Flexible Budget

Master Budget

Sales Volume (in units)

1,900

2,000

Sales Revenues (in $)

$30,000

$32,000

Less: Variable Costs

15,500

15,000

Contribution Margin

Less: Fixed Costs

12,500

13,000

Operating Income

Required)

a) Fill out the blank cells with appropriate variance names or numbers. Also indicate if the variance is favorable (F) or Unfavorable (U) (20 points).

b) Explain the source of variances (5 pts)

Solutions

Expert Solution

(a) Actual Results Flexible Budget Spending Variance Type Activity Variance Type Master Budget
Sales Volume (in units)               1,900                1,900               2,000
Sales Revenues (in $)             30,000              30,400                        400 U                       1,600 U             32,000
Less: Variable Costs ($)             15,500              14,250                      1,250 U                          750 F             15,000
Contribution Margin ($)             14,500              16,150                      1,650 U                     850 U             17,000
Less: Fixed Costs ($)             12,500              13,000                        500 F                              -               13,000
Operating Income ($)               2,000                3,150                      1,150 F                     850 U               4,000
(b) Overall Spending Variance is $ 1,150 F , which means the company has performed better as compare to Flexible Budget. $ 400 U sales revenue variances is because the actual selling price per unit is less than the budgeted selling price. Variable cost per unit in actual will be more than budgeted hence resulted in $1,250 U variance. The budgeted fixed cost is more than the actual fixed cost which means the company has controlled some how their fixed expenses as compare to the budget resulting $500 F Variance.

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