Question

Static and Flexible Budgets
Graham Corporation used the following data to evaluate its current operating system. The company sells items for $10 each and used a budgeted selling price of $10 per unit.

		Actual	Budgeted
Units sold		991,000	1,000,000
Variable costs		1,280,000	1,500,000
Fixed costs		955,000	905,000

a. Prepare the actual income statement, flexible budget, and static budget.

Do not use negative signs with any of your answers below.

		Actual Results	Flexible Budget	Static Budget
Units sold		Answer	Answer	Answer
Revenues		Answer	Answer	Answer
Variable costs		Answer	Answer	Answer
Contribution margin		Answer	Answer	Answer
Fixed costs		Answer	Answer	Answer
Operating income		Answer	Answer	Answer

For questions b., c., and d., do not use negative signs with your answers. Select either U for Unfavorable or F for Favorable using the drop down box next to each of your variance answers.

b. What is the static-budget variance of revenues?

$Answer

c. What is the flexible budget variance for variable costs?

$Answer

d. What is the flexible budget variance for fixed costs?

$Answer

Answer 1

a.)

	Actual results	Flexible budget	Static Budget
Units sold	991000	991000	1000000
Revenues	9910000	9910000	10000000
Variable costs	1,280,000	1486500	1,500,000
contribution margin	8630000	8423500	8500000
Fixed costs	955,000	905000	905,000
operating income	7675000	7518500	7595000

b.) static budget variance for revenues = Actual revenue - static budget revenue = $ 9910000 - $ 10000000

= 90000 U ( static budget variance for revenue is unfavorable because of actual revenue is less than the static budget revenue.)

c.) Flexible budget variance for variable costs = Actual variable costs - Flexible budget variable costs

= $ 1286000 - $ 1486500 = 200500 F  ( Flexible budget variance for variable costs is favorable because of actual variable cost is less than the flexible budget variable cost)

d.) Flexible budget variance for fixed cost = Actual fixed cost - Flexible budget fixed cost =$ 955000 - $ 905000

= 50000 U ( Flexible budget variance for fixed cost is unfavorable because of actual fixed cost is greater than the flexible budget flexible budget fixed cost. )