In: Accounting
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)
(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. |