Question

Ya ya inc static budget for 10,000 units of production

Answer 1

  STATIC BUDGET

A static budget shows the expected results of a responsibility center for only one activity level. Once the budget has been determined, it is not changed, even if the activity is changing. The static budget is used in many service companies and for some administrative functions of manufacturing companies, such as purchasing, engineering and accounting.

static budget for 10,000 units of production

The managment decided that 10000 unit is the most likey output volume, and sets the static budget based on this sales and production level. After the end of the month, company personnel prepare the following table, showing the static budget, actual results, and the static budget variance.

Note:-All following amount except unit in the statement are based on assumption.

IncomeStatementline-item Static Budget(A)10,000 units

Revenue 400000

Variable costs:   

  Materials 150000

  Labor 100000

  Overhead 50000

    Total 300000

Contribution margin 100000

Fixed costs:

  Manufacturin Overhead 50000

  Marketing costs 35000

    Total fixed costs 85000

Operating income 15000

The static budget variance shows a large favorable variance for revenue, and large unfavorable variances for variable costs. These large variances are due primarily to the fact that the static budget was built on an output level of 10,000 units.There are also small variances for fixed costs. These costs should not vary with the level of output (at least within the relevant range). However, many factors can cause actual fixed costs to differ from budgeted fixed costs that are unrelated to output volume. For example, property tax rates and the fixed salaries of front office personnel can change, and depreciation expense can change if unexpected capital acquisitions or dispositions occur.