In: Accounting
As the new accountant for Cohen & Co., you have been asked to provide a succinct analysis of financial performance for the year just ended. You obtain the following information that pertains to the company’s sole product:
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Required: |
1. What was the actual operating income for the period?
2. What was the company’s master budget operating income for the period?
3. What was the total master (static) budget variance, in terms of operating income, for the period? Is this variance favorable or unfavorable?
4. From the information given earlier, decompose the total master (static) budget variance by determining the amounts for:
a- The total flexible-budget variance, is this variance favorable or unfavorable?
b- The sales volume variance, is this variance favorable or unfavorable?
Master (Static | Flexible | ||
Actual | Budget | Budget | |
Units sold | 35000 | 40000 | 35000 |
Sales | 390000 | 375000 | 328125 |
375000/40*35 | |||
Variable costs | 220000 | 220000 | 192500 |
220000/40*35 | |||
Fixed costs | 153125 | 145000 | 145000 |
operating income | 16875 | 10000 | -9375 |
1)actual operating income=16875 | |||
2)master budget operating income=10000 | |||
3)total static budget variance=6875 favorable | |||
(in terms of operating income) (16875-10000) | |||
4 | |||
a)total flexible budget variance=16875-(-9375) | |||
= | 26250 favorable | ||
(actual operating income-flexible operating income) | |||
b)sales volume variance=-9375-10000 | |||
=19375 unfavorable | |||
(flexible operating income-budgeted operating income) |