Question

Here is the data that Vroom-Vroom used for their budgets:					Here are the Actual Results in December and January:
Monthly Budget Data:					Actual Data:		December	January
Selling Price per uniit:	$            70.00	each			Production (Units)		375,000	150,000
Raw Materail Cost	$            30.00	each			Revenue		$        26,300,000	$        10,300,000
Packaging Costs	$            10.00	each			Raw Materials		$        11,348,500	$          4,485,000
Electricity	$               3.00	each			Packaging Materials		$          3,720,000	$          1,445,000
Waste and Other Costs	$               5.00	each			Electricity		$          1,125,000	$              460,000
Salary and Wages Costs	$        450,000	per month			Waste and Other Costs		$          1,888,000	$              750,000
Fringe Benefits	50%	of Salaries			Wages		$              500,000	$              450,000
Rent Costs	$        500,000	per month			Fringe Benefits		$              250,000	$              225,000
Insurance Costs	$          70,000	per month			Rent		$              500,000	$              500,000
Depreciation Costs	$        250,000	per month			Insurance		$                70,000	$                75,000
					Depreciation		$              250,000	$              240,000

Vroom-Vroom estimated sales/production will be between 100,000 and 300,000 cars per month. Their static budget is based on 200,000 cars sold per month. Assume that all units produced in a month are also sold in that month. Vroom-Vroom’s unit of production/sale is a car (unit/each).

Question 3: Analyze the differences between static and flexible budgets. (28 points)

1. What is the difference between the static and flexible budgets?
2. What are the pros and cons for each - static and flexible budgets?
3. Write a letter to Vroom-Vroom’s CFO. Explain the results in December and January. Provide your recommendation for either static or flexible budgets. Provide explanations and backup for your recommendation.

Answer 1

Answer is given below