Question

Edison Electronics produces wireless headphones. Management planned to make and sell 9,000 sets of headphones during the year and determined the standard price and cost data to be as follows:

Standard price and variable costs
Sales	$130.00 per unit
Raw Materials	$32.20 per unit
Direct Labor	$40.50 per unit
Overhead	$18.70 per unit
Planned fixed costs
Manufacturing overhead	$97,000
Selling, general and administrative costs	$135,000

Edison Electronics actually produced and sold 9,700 sets of headphones for the year. Actual sales and costs for the year were as follows:

Sales	$1,240,300
Variable costs
Raw Materials	$325,600
Direct Labor	$400,500
Overhead	$176,400
Fixed costs
Manufacturing overhead	$100,500
Selling, general and administrative costs	$131,800

Required:

1. Prepare the flexible budget showing the sales and each cost line as a separate line item.

2. Determine the sales and variable cost volume variances and indicate whether each variance is favorable or unfavorable.

3. Determine the flexible budget (spending) variances and indicate whether each variance is favorable or unfavorable.

4. If budgeted operating assets were $750,000 and actual operating assets were $745,000, what was the budgeted return on investment and what was the actual return on investment for Edison Electronics?

Answer 1

ans 1 Flexible Budget	Flexible
No. of unit sold	9700
Sales	$12,61,000
	(9700*130)
Variable cost
Raw Materials	$3,12,340
	(9700*32.2)
Direct Labor	$3,92,850
	(9700*40.5)
Overhead	$1,81,390
	(9700*18.7)
Total variable cost	$8,86,580
Contribution margin C	$3,74,420
Less: fixed cost
Manufacturing overhead	$97,000
Selling, general and administrative costs	$1,35,000
Tota fixed cost F	$2,32,000
Net operating income C-F	$1,42,420
ans 2
Sales volume variance	$91,000	Favorable
Variable cost volume varinace	$63,980	Unfavorable
See below

ans 3
Column1	Column2	Column3	Column4	Column5	Column6	Column7	Column8
Flexible Budget variances	Actual Cost	Revenue and spending variance	Flexible	Activity/volume variance	Static Budget
No. of unit sold	9700	Actual -flexible		9700		Flexible-Static	9000
Sales	$12,40,300	$20,700	U	$12,61,000	$91,000	F	$11,70,000
				(9700*130)			(900*130)
Variable cost
Raw Materials	$3,25,600	$13,260	U	$3,12,340	$22,540	U	$2,89,800
				(9700*32.2)			(9000*32.2)
Direct Labor	$4,00,500	$7,650	U	$3,92,850	$28,350	U	$3,64,500
				(9700*40.5)			(9000*40.5)
Overhead	$1,76,400	$4,990	F	$1,81,390	$13,090	U	$1,68,300
				(9700*18.7)			(9000*18.7)
Total variable cost	$9,02,500	$15,920	U	$8,86,580	$63,980	U	$8,22,600
Contribution margin C	$3,37,800	$36,620	U	$3,74,420	$27,020	F	$3,47,400
Less: fixed cost
Manufacturing overhead	$1,00,500	$3,500	U	$97,000	$0	None	$97,000
Selling, general and administrative costs	$1,31,800	$3,200	F	$1,35,000	$0	None	$1,35,000
Tota fixed cost F	$2,32,300	$300	U	$2,32,000	$0	None	$2,32,000
Net operating income C-F	$1,05,500	$36,920	U	$1,42,420	$27,020	F	$1,15,400
ans 4
	Budgeted	Actual
Net operating Income N	$1,42,420	$1,05,500
Avg operating assets A	750000	745000
ROI N/A*100	18.99	14.16	%
If any doubt please comemnt