Question

Calculating the sales volume and flexible budget variances, budget reconciliation report (LO1, LO2, LO3). During the holiday season, Ajay Singh offers gift-wrapping services at the local mall. Ajay budgets to wrap 1,250 packages per month for $3 per package. Ajay estimates that his variable costs (supplies) will equal $1 per package wrapped and that his fixed costs (rent and utilities) will equal $600 per month. For the month of December, Ajay actually wrapped 1,500 packages, receiving $4,500 in revenue. However, Ajay spent $1,600 on supplies (he had to make an emergency purchase of bows at retail price). In addition, Ajay paid $700 to the mall's management for rent and utilities. (This past December was unseasonably cold, and Ajay is charged a percentage of the mall's actual utility bill.)

Required:

a. What was Ajay's master budget profit and actual profit for December?

b. By how much did Ajay's profit increase or decrease in December due to changes in sales volume (i.e., what was the sales volume variance)?

c. What was Ajay's variable cost variance and fixed cost spending variance for the month of December? Is there enough information to decompose Ajay's variable cost variance into price and quantity components?

d. Prepar a budget reconciliation report for Ajay for the month of December.

solve all parts please!!!

Answer 1

Please find the attached Chart for clarity in understanding

Particulars	Legends	Budgeted	Actual
No of Packages Per Month	A	1250	1500
Pay Per Package	B	3	3
Revenue	C = (A * B)	3750	4500
Variable Cost/Package	D	1	1.07
Variable Cost/Package	E = (A * D)	1250	1600
Fixed Cost	F	600	700
Total Cost	G = (E + F)	1850	2300
Profit	H = (C - G)	1900	2200
Profit/Package	I = H/A	1.52	1.47

Answer to a.

Ajay's Budgeted profit was $1900 & actual profit is $2200, as explained in above chart.

Answer to b.

Fourmula of Sales Voulme Variance is =

(Actual units sold - Budgeted units sold) x Budgeted price per unit

So from above data = (1500 - 1250) * 3, which equls to $750

Answer to c.

The Variable cost variance is the diffrence between budgeted variable cost & actual budgeted cost.

In the above chart, Ajay budgeted Variable Cost was $ 1.00, actaul variable cost is $1.07, so the diffrence of both i.e. $0.07 is the Varibale Cost Variance.

Similarly Fixed cost Variance is $100 i.e. ($700 - $600)

Answer to d.

The above comparision between Budgeted & Actual represents the "Budget Reconciliation Report"