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

Exercise 38

Flexible Budgets and Operating-Income Variance Analysis The following information is available for Mitchelville Products Company for the month of July:

	Actual	Master Budget
Units	3,800	4,000
Sales revenue	$53,200	$60,000
Variable manufacturing costs	19,000	16,000
Fixed manufacturing costs	16,000	15,000
Variable selling and administrative expenses	7,700	8,000
Fixed selling and administrative expenses	10,000	9,000

Required

1. Set up a spreadsheet to compute the July sales volume variance and the flexible-budget variance for the month in terms of both contribution margin and operating income.

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2. Discuss implications of these variances on strategic cost management for Mitchelville.

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3. Create an electronic spreadsheet that will allow the firm to prepare pro forma budgets for activities within its relevant range of operations and prepare flexible budgets when sales are:

?a. 3,800 units.

?b. 4,100 units.

Step 1 of 8

Budgeting is a management task which requires a lot of planning and thoughts from the managers. Budgeting is one of the important components of financial success which encourages the organization in preparing the detailed financial statement related to all the expected expenses and incomes along with the estimates for a given period in the future.