Question

As part of its comprehensive planning and control system, Mopar Company uses a master budget and subsequent variance analysis. You are given the following information that pertains to the company’s only product, XL-10, for the month of December.

Required:

Using text Exhibit 14.4 as a guide, complete the missing parts of the following profit report for December. (If a variance has no amount, select "None" in the corresponding dropdown cell.)

	Actual results Flexible-budget variances Flexible budget Sales volume variances Master (static) budget Unit sales 101,000 90,000 Sales $505,000 $450,000 Variable costs 383,800 270,000 Contribution margin $121,200 $180,000 Fixed costs 75,000 100,000 Operating income $46,200 $80,000

2. Based on your completed profit report, determine the dollar amount, and label (Favorable or Unfavorable)) each of the following variances for December: (If a variance has no amount, select "None" in the corresponding dropdown cell.)

a. Total master (static) budget variance (also referred to as the total operating income variance for the period).

b. Total flexible-budget variance.

c. Sales volume variance, in terms of operating income.

d. Sales volume variance, in terms of contribution margin.

e. Selling price variance.

	a. Total master (static) budget variance b. Total flexible-budget variance c. Sales volume variance, in terms of operating income d. Sales volume variance, in terms of contribution margin e. Selling price variance

Answer 1

Ans.1
		Actual results	Variances		Flexible budget	Variances		Planning budget
	Unit sales	101000			101000		F	90000
	Sales	505000	0	none	505000	55000	F	450000
	Variable cost	383800	80800	U	303000	33000	U	270000
	Contribution margin	121200	80800	U	202000	22000	F	180000
	Fixed costs	75000	25000	F	100000	0	none	100000
	Operating income	46200	55800	U	102000	22000	F	80000
	*Calculations for Flexible Budget:
	Unit sales	101000
	Sales	450000/90000*101000
	Variable cost	270000/90000*101000
	*Fixed cost in flexible budget will be equal to planning budget.
Ans.a	Total Master budget variance =   Flexible budget operating income - Planning budget operating income
			102000 - 80000
			22000 F
Ans.b	Total flexible budget variance = Actual results operating income - Flexible budget operating income
			46200 - 102000
			55800 U
Ans.c	Sales volume variance (operating income) = 102000 - 80000 = 22000 F
Ans.d	Sales volume variance (contribution margin) = 102000 - 80000 = 22000 F
Ans.e	Selling price variance = Flexible budget sales - Master budget sales
		101000 - 90000
		11000