Question

In: Accounting

You are given the following static budget report: Budget            Actual              Variance Unit Sales  &nbsp

You are given the following static budget report:

Budget            Actual              Variance

Unit Sales                                           10,000               15,000             5,000 F

Variable Expenses:

    Commissions                                  $30,000 $33,000 $3,000 U

    Advertising                                      $1,000 $1,200 $200 U

    Travel                                              $10,000 $11,000 $1,000 U

    Samples                                          $2,500 $2,300 $200 F

Total Variable                                     $43,500 47,500 $4,000 U

Fixed Expenses

    Rent                                                 $5,000 $5,000 0

    Salaries – Sales                               $2,000 $2,000 0

    Salaries – Office                              $1,200 $1,200 0

    Depreciation                                    $1,500 $1,500 0

Total Fixed                                          $9,700 $9,700             0

Total Expenses $53,200 $57,200 $4,000 U

Prepare a flexible budget analysis and explain whether you believe that costs were controlled.  How do the results of the flexible budget differ from the results of the static budget?

Solutions

Expert Solution

  • All working forms part of the answer
  • Working for Variable expenses:

Variable expenses:

For 10,000 budgeted units

Per unit [based on 10,000 units]

For actual 15,000 units Flexible Budget

[A]

[B = A/ 10,000]

[C = B x 15,000 units]

Commission

$    30,000.00

$               3.00

$ 45,000.00

Advertising

$       1,000.00

$               0.10

$    1,500.00

Travel

$    10,000.00

$               1.00

$ 15,000.00

Samples

$       2,500.00

$               0.25

$    3,750.00

Total

$    43,500.00

$               4.35

$ 65,250.00

  • Flexible Budget

Budget

Actual

Variance

Units Sales

15000

5000

Variable expenses:

Commission

$    45,000.00

$    33,000.00

$ 12,000.00

Favourable

Advertising

$       1,500.00

$       1,200.00

$        300.00

Favourable

Travel

$    15,000.00

$    11,000.00

$    4,000.00

Favourable

Samples

$       3,750.00

$       2,300.00

$    1,450.00

Favourable

Total Variable

$    65,250.00

$    47,500.00

$ 17,750.00

Favourable

Fixed expenses:

Rent

$       5,000.00

$       5,000.00

$                 -  

Neither F nor U

Salaries Sales

$       2,000.00

$       2,000.00

$                 -  

Neither F nor U

Salaries Office

$       1,200.00

$       1,200.00

$                 -  

Neither F nor U

Depreciation

$       1,500.00

$       1,500.00

$                 -  

Neither F nor U

Total Fixed

$       9,700.00

$       9,700.00

$                 -  

Neither F nor U

Total Expenses

$   74,950.00

$    57,200.00

$ 17,750.00

Favourable

  • Yes the cost were controlled as shown by “Favourable” Variances.
  • Results of the Flexible Budget differ from result of Static Budget mostly on Variable expense part. While preparing Static Budget, variable expense are considered based on ‘budgeted units’ but while preparing Flexible Budget, ‘actual units’ are used to calculated budgeted variable expenses.

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