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 2: Prepare a flexible budget in Excel for Vroom-Vroom.

1. Show the flexible budget for December in Contribution Margin Income Statement format.
2. Compare December’s flexible budget to December’s actual results. Specify which line items are favorable or unfavorable and how much.
3. For Ingredient Costs and Packaging Costs, break out the Price and Volume Variances for December. Provide potential explanations
4. Show the flexible budget for January in Contribution Margin Income Statement format.
5. Compare January’s flexible budget to January’s actual results. Specify which line items are favorable or unfavorable and how much.
6. For Ingredient Costs and Packaging Costs, break out the Price and Volume Variances for January. Provide potential explanations for each one.

Answer 1

2.a.

Vrooom-Vroom
December
Contribution Margin Income Statement
Particulars		Amount (in $)
Revenue
Sales		26,250,000.00
Less: Variable Cost
Raw Material Cost	11,348,000.00
Packaging Cost	3,720,000.00
Electricity	1,125,000.00
Waste and Other Costs	1,888,000.00
Salary and Wages Costs	500,000.00
Fringe Benefits	250,000.00	18,831,000.00
Contribution Margin		7,419,000.00
Less Fixed Cost:
Rent Cost	500,000.00
Insurance Cost	70,000.00
Depreciation Cost	250,000.00	820,000.00
Net income		6,599,000.00

2.b.

Vrooom-Vroom
December
Actual Result Versus Flexible Budget Income Statement
	Actual Results		Flexible Budget
Particulars		Amount (in $)		Amount (in $)	Variance Analysis
Production (Units)		375,000.00		375,000.00
Selling Price (Per Unit)		70.13		70.00
Sales		26,300,000.00		26,250,000.00	50,000.00	Favourable
	Per Unit		Per Unit
	Cost (in $)		Cost (in $)
Raw Material Cost	30.26	11,348,000.00	30.00	11,250,000.00	(98,000.00)	Unfavourable
Packaging Cost	9.92	3,720,000.00	10.00	3,750,000.00	30,000.00	Favourable
Electricity	3.00	1,125,000.00	3.00	1,125,000.00	-
Waste and Other Costs	5.03	1,888,000.00	5.00	1,375,000.00	(513,000.00)	Unfavourable
Salary and Wages Costs		500,000.00		450,000.00	(50,000.00)	Unfavourable
Fringe Benefits		250,000.00		225,000.00	(25,000.00)	Unfavourable
Gross Profit		7,469,000.00		8,075,000.00
Rent Cost		500,000.00		500,000.00	-
Insurance Cost		70,000.00		70,000.00	-
Depreciation Cost		250,000.00		250,000.00	-
Net income		6,649,000.00		7,255,000.00

2.c. Vroom Vroom had done the budgeting of raw material cost per unit @$30 and packing cost per unit @$10. While, comparing the flexible budget and actual result. There is difference in price of raw material per unit@$0.26 which increase the raw material cost by $98,000 in actual results. With regards to packing cost, there is difference in price of packing cost per unit@$0.08 which decrease the packing cost by $30,000 in actual results.

2.d

Vrooom-Vroom
January
Constribution Margin Income Statement
Particulars		Amount (in $)
Revenue
Sales		10,500,000.00
Less: Variable Cost
Raw Material Cost	4,500,000.00
Packaging Cost	1,500,000.00
Electricity	450,000.00
Waste and Other Costs	750,000.00
Salary and Wages Costs	450,000.00
Fringe Benefits	225,000.00	7,875,000.00
Contribution Margin		2,625,000.00
Less Fixed Cost:
Rent Cost	500,000.00
Insurance Cost	70,000.00
Depreciation Cost	250,000.00	820,000.00
Net income		1,805,000.00

2.e.

Vrooom-Vroom
January
Actual Result Versus Flexible Budget Income Statement
	Actual Results		Flexible Budget
Particulars		Amount (in $)		Amount (in $)	Variance Analysis
Production (Units)		150,000.00		150,000.00
Selling Price (Per Unit)		68.67		70.00
Sales		10,300,000.00		10,500,000.00	(200,000.00)	Unfavourable
	Per Unit		Per Unit
	Cost (in $)		Cost (in $)
Raw Material Cost	29.90	4,485,000.00	30.00	4,500,000.00	15,000.00	Favourable
Packaging Cost	9.63	1,445,000.00	10.00	1,500,000.00	55,000.00	Favourable
Electricity	3.07	460,000.00	3.00	450,000.00	(10,000.00)	Unfavourable
Waste and Other Costs	5.00	750,000.00	5.00	750,000.00	-
Salary and Wages Costs		450,000.00		450,000.00	-
Fringe Benefits		225,000.00		225,000.00	-
Gross Profit		2,485,000.00		2,625,000.00
Rent Cost		500,000.00		500,000.00	-
Insurance Cost		70,000.00		70,000.00	-
Depreciation Cost		250,000.00		250,000.00	-
Net income		1,665,000.00		1,805,000.00

2.f. Vroom Vroom had done the budgeting of raw material cost per unit @$30 and packing cost per unit @$10. While, comparing the flexible budget and actual result. There is difference in price of raw material per unit@$0.10 which decrease the raw material cost by $15,000 in actual results. With regards to packing cost, there is difference in price of packing cost per unit@$0.37 which decrease the packing cost by $55,000 in actual results.