Question

1. M&M Company decided to prepare a flexible budget using the following data:

a) Sales price-$50 per unit

b) Direct Materials -$10 per unit

c) Direct labor-$20 per unit

d) Variable Overhead-$5 per unit

e) Fixed Overhead $100,000

Prepare a flexible budget using the numbers listed above for 20,000, 30,000, and 40,000 units. Make sure your budget includes Contribution margin and Net Income.

2. M&M Company sold 30,000 units. Here are their actual numbers. Determine how much each actual number differs from the numbers budgeted for sales of 30000. Indicate whether the difference is favorable or unfavorable.

1. Sales $1,500,000
2. Direct Materials -$600,000
3. Direct Labor-$450,000
4. Variable Overhead-$140000
5. Fixed Overhead -$105,000

Answer 1

Answer 1)

Flexible Budget

Number of Units sold	20,000	30,000	40,000
Sales @ $ 10 per unit	$    1,000,000	$        1,500,000	$    2,000,000
Less: Variable Costs
Direct Materials @ $ 10 per unit	$        200,000	$            300,000	$        400,000
Direct Labor @ $ 20 per unit	$        400,000	$            600,000	$        800,000
Variable Overheads @ $ 5 per unit	$        100,000	$            150,000	$        200,000
Contribution margin	$        300,000	$            450,000	$        600,000
Less: Fixed Overhead	$        100,000	$            100,000	$        100,000
Net Income	$        200,000	$            350,000	$        500,000

Answer 2)

Calculation of Variance

S. No.	Item	Budgeted	Actual	Variance (Budgeted - Actual)	Favorable/ (Unfavorable)
a	Sales	$    1,500,000	$        1,500,000	-	-
b	Direct Materials	$        300,000	$            600,000	$     (300,000)	Unfavorable
c	Direct Labor	$        600,000	$            450,000	$        150,000	Favorable
d	Variable Overheads	$        150,000	$            140,000	$          10,000	Favorable
e	Fixed Overhead	$        100,000	$            105,000	$          (5,000)	Unfavorable