Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 29

Edwards and Bell market a single line of home computer, dubbed the XL-98. The master budget for the coming year contained the following items: sales revenue, $400,000; variable costs, $250,000; fixed costs, $100,000. Actual results for the year were as follows: sales revenue, $350,000; variable costs, $225,000; fixed costs, $95,000. The flexible-budget operating income for the year was $35,000. What is the total static (master) budget variance in operating profit for the period? What portion of the total static (master) budget variance is attributable to actual sales volume being dif­ferent from planned sales volume? What portion is due to a combination of selling price and costs (variable cost per unit and total fixed costs) being different from budgeted amounts?

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The manufacturing process includes different types of costs which includes fixed costs and variable costs. It includes costs related to raw material, direct labor and direct manufacturing overheads. When variable costs are deducted from the sales price then it is called as contribution.