Question

7-23 Flexible-budget preparation and analysis. XYZ Printers, Inc., produces luxury checkbooks with three checks and stubs per page. Each checkbook is designed for an individual customer and is ordered through the customer’s bank. The company’s operating budget for September 2017 included these data:

Number of checkbooks	20,000
Selling price per book	$ 22
Variable cost per book	$ 9
Fixed costs for the month	$150,000

The actual results for September 2017 were as follows:

Number of checkbooks produced and sold	15,000
Average Selling price per book	$ 23
Variable cost per book	$ 8
Fixed costs for the month	$155,000

The executive vice president of the company observed that the operating income for September was much lower than anticipated, despite a higher-than-budgeted selling price and a lower-than-budgeted variable cost per unit. As the company’s management accountant, you have been asked to provide explanations for the disappointing September results.

XYZ develops its flexible budget on the basis of budgeted per-output-unit revenue and per-output-unit variable costs without detailed analysis of budgeted inputs.

Required:

1. Prepare a static-budget-based variance analysis of the September performance.

2. Prepare a flexible-budget-based variance analysis of the September performance.

3. Why might XYZ printers find the flexible-budget-based variance analysis more informative than the static-budget-based variance analysis? Explain your answer.

plz using computer writing, not hand writing

Answer 1

(3) Bank organiser find the flexible budget based variance analysis more informative than the static budget based variance analysis because flexible budget based variance is calculated on the actual number of units sold while static budget based variance is calculated on the budgeted number of units sold. In static budget variance the difference in the operating income is shown as $30000 Unfavorable but in actual if we compare the flexible budget based variance there is $25000 Favorable operating income. That is because of the difference in the number of units sold. In static budget we take the budgeted number of units sold i.e., 20000 units while in flexible budget we take the actual number of units sold i.e., 15000 units. So, the Bank prefer flexible budget based variance over static budget based variance because of the difference in the number of units sold.