Question

Shaghai Tea Products has an exclusive contract with British Distributors. Calamine and Shanghai are two brands of teas that are imported and sold to retail outlets. The following information is provided for the month of March: Actual Budget Calamine Shanghai Calamine Shanghai Sales in pounds 3,400 lbs. 3,600 lbs. 4,000 lbs. 3,000 lbs Price per pound $2.50 $2.50 $2.00 $3.00 Variable cost per pound 1.00 2.00 1.00 1.50 Contribution margin $1.50 $0.50 $1.00 $1.50 Budgeted and actual fixed corporate-sustaining costs are $1,750 and $2,000, respectively. For the contribution margin, what is the total flexible-budget variance? $300 favorable $1,900 unfavorable $500 favorable $800 unfavorable

Answer 1

Flexible budget variance	=	$     1,900	Unfavourable
Workings:
	Actual		Budget
	Calamine	Sanghai	Calamine	Sanghai
Sales in pounds (lbs)	3,400	3,600	4,000	3,000
contribution margin	$       1.50	$       0.50	$       1.00	$       1.50
Actual contribution margin	=	(3,400 X $1.5) + (3,600 X $0.5)
	=	$     6,900
Contribution margin for flexible budget	=	(3,400 X $1) + (3,600 X $1.5)
	=	$     8,800
Flexible budget variance	=	Actual contribution margin - Contribution margin for flexible budget
	=	$6,900 - $8,800
	=	$     1,900	Unfavourable