Question

Static and Flexible Budgets Graham Corporation used the following data to evaluate its current operating system.

The company sells items for $10 each and used a budgeted selling price of $10 per unit. Actual Budgeted Units sold 1,482,000 1,500,000 Variable costs 2,815,000 3,000,000 Fixed costs 2,490,000 2,425,000 a. Prepare the actual income statement, flexible budget, and static budget. Do not use negative signs with any of your answers below. Actual Results Flexible Budget Static Budget Units sold Answer Answer Answer Revenues Answer Answer Answer Variable costs Answer Answer Answer Contribution margin Answer Answer Answer Fixed costs Answer Answer Answer Operating income Answer Answer Answer For questions b., c., and d., do not use negative signs with your answers. Select either U for Unfavorable or F for Favorable using the drop down box next to each of your variance answers. b. What is the static-budget variance of revenues? $Answer Answer c. What is the flexible budget variance for variable costs? $Answer Answer d. What is the flexible budget variance for fixed costs? $Answer Answer

Answer 1

Answer :-

a) The actual income statement, flexible budget, and static budget -

	Actual Budget	Flexible Budget	Static Budget
Unit Sold	1,482,000	1,482,000	1,500,000
Selling Price	$10	$10	$10
Revenues (Unit sold × Selling Price)	$14,820,000	$14,820,000	$15,000,000
Variable costs	$2,815,000	$2,964,000 (Note -1)	$3,000,000
Contribution margin ( Revenue - variable cost)	$12,005,000	$11,856,000	$12,000,000
Fixed costs	$2,490,000	$2,425,000 (Remain same as static budget)	$2,425,000
Operating income (Contribution Margin - Fixed costs)	$9,515,000	$9,431,000	$9,575,000

Note 1 :-

Variable cost for Flexible Budget are as follows :-

Variable cost for Flexible Budget = (Static Budgeted variable cost / Static Budget Unit sold ) × Flexible Budget unit sold

Static Budgeted variable cost = $3,000,000

Static Budget Unit sold = 1,500,000 units

Flexible Budget unit sold = 1,482,000 units

Variable cost for Flexible Budget = ($3,000,000 / 1,500,000 units ) × 1,482,000 units

Variable cost for Flexible Budget = $2,964,000

b)The static-budget variance of revenues are as follows -

Static budget variance of revenues = Static budgeted revenue - Actual revenue

Static Budgeted revenue = $15,000,000

Actual revenue = $14,820,000

Static budget variance of revenues =$15,000,000 - $14,820,000

Static Budget variance of revenue = $180,000 U

c)The flexible budget variance for variable cost are as follows :-

Flexible budget variance for variable cost = Flexible budgeted variable cost - Actual variable cost

Flexible budgeted variable cost = $2,490,000

Actual variable cost = $ 2,435,000

Flexible budget variance for variable cost = $2,490,000 - $2,425,000

Flexible Budget variance for variable cost = $149,000 F

d) The flexible budget variance for fixed costs are as follows -

Flexible budget variance for fixed costs = Actual Fixed cost - Flexible budgeted Fixed cost

Actual Fixed cost = $2,490,000

Flexible Budgeted Fixed Cost = $2,425,000

Flexible budget variance for fixed costs = $2,490,000 - $2,425,000

Flexible budget variance for fixed costs = $65,000 U