Question

Carlson Enterprises manufactures tires for the Formula 1 motor racing circuit. For August 2017​,

it budgeted to manufacture and sell 3,300 tires at a variable cost of $72 per tire and total fixed costs of $53,000.The budgeted selling price was $110 per tire. Actual results in August 2017 were 3,200 tires manufactured and sold at a selling price of $112

per tire. The actual total variable costs were $256,000​,

and the actual total fixed costs were $48,000.

Requirement 1. Prepare a performance report that uses a flexible budget and a static budget.

Begin with the actual​ results, then complete the flexible budget columns and the static budget columns. Label each variance as favorable or unfavorable.​ (For variances with a​ $0 balance, make sure to enter​ "0" in the appropriate field. If the variance is​ zero, do not select a​ label.)

	Actual
	Results
Units sold
Revenues
Variable costs
Contribution margin
Fixed costs
Operating income

Flexible-Budget		Flexible
Variances		Budget

Sales-Volume		Static
Variances		Budget

Requirement 2. Comment on the results in requirement 1.

The total static-budget variance in operating income is $						There is a(n)		total flexible-budget
variance and a(n)			sales-volume variance. The sales-volume variance arises solely because actual units
manufactured and sold were			than the budgeted 3,300 units. The flexible-budget variance in operating income is due
primarily to the			in unit variable costs.

Answer 1

Part 1

	Actual Results	Flexible-Budget Variances	Flexible Budget	Sales-Volume Variances	Static Budget
	(1)	(2) = (1) – (3)	(3)	(4) = (3) – (5)	(5)
Units sold	3200		3200	100 U	3300
Revenues	358400	6400 F	352000	11000 U	363000
Variable costs	240700	10300 U	230400	7200 F	237600
Contribution margin	117700	3900 U	121600	3800 U	125400
Fixed costs	48000	5000 F	53000	0	53000
Operating income	69700	1100 U	68600	3800 U	72400

3300*110 =363000

3200*110 =352000

3200*112 = 358400

256000/3200 = 80

3300*72 =237600

3200*72 =230400

Part 2

The total static-budget variance in operating income is $4900 U. There is an unfavorable total flexible-budget variance and an unfavorable sales-volume variance. The sales-volume variance arises solely because actual units manufactured and sold were 100 less than the budgeted 3,300 units. The flexible-budget variance is due primarily to the $8 increase in unit variable costs.