Question

1. Maxie Company is creating their budget for the following year. Here is their relevant information:

Expected Sales 1,000 units per month

Sales Price $15 per unit

Variable Labor costs $3 per unit

Variable Material costs $2 per unit

Fixed Costs $6,000 per month

In the first month of the new year, Maxie Company's operating income was $2,000. What is their static budget operating income variance?

A. $4,000 Favorable

B. $4,000 Unfavorable

C. $2,000 Unfavorable

D. $2,000 Favorable

2. Burton Company produces top hats. They are trying to maximize profits. Here is their relevant information:

Selling price per hat: $50 each

Labor costs per hat: $15

Material costs per hat: $10

Fixed Costs per month: $160,000

Burton Company wants to increase operating income to $100,000 per month. How many hats would they need to sell?

A. 6,400 hats

B. 2,000 hats

C. 10,400 hats

D. 4,000 hats

3. Burton Company produces top hats. They are comparing budgeted to actual results. Burton Company budgeted producing 10,000 hats each month. Here is the rest of their relevant information:

Selling price per hat: $50 each

Labor costs per hat: $15

Material costs per hat: $10

Fixed Costs per month: $160,000

Burton Company produces 8,000 hats in January. Their actual labor costs in January are $125,000. What is the flexible budget variance for labor costs?

A. $25,000 Favorable

B. $5,000 Favorable

C. $5,000 Unfavorable

D. $25,000 Unfavorable

Answer 1

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1.
Static Budgeted Opearting Income:
Sales	1,000*$15	$      15,000
Less:
Variable Labor Cost	1,000*$3	$      (3,000)
Variable Material Cost	1,000*$2	$      (2,000)
Fixed Cost		$      (6,000)
Static Budgeted Opearting Income	a	$        4,000
Actual operating income	b	$        2,000
C.	a-b	$        2,000	Unfavorable
2.
Fixed Cost		$   160,000
Add: Opearting Income		$   100,000
Desired Contribution margin		$   260,000
Contribution margin per unit	$50-$15-$10	$              25
C	$26,000/$25	10,400	hats
3.
Flexible Labor Cost	8,000 units*$15	$   120,000
Actual labor Cost		$   125,000
C		$        5,000	Unfavorable