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Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins
Edition 5ISBN: 0073526940Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins
Edition 5ISBN: 0073526940Master (Static) Budget Variance and Components As the new accountant for B&B, Inc., you’ve been asked to provide a succinct analysis of financial performance for the year just ended. You obtain the following information that pertains to the company’s sole product.
| Actual | Master (Static) Budget |
Units sold | 40,000 | 45,000 |
Sales | $390,000 | $450,000 |
Variable costs | $220,000 | $270,000 |
Fixed costs | $140,000 | $138,000 |
Required
1. What was the actual operating income for the period?
2. What was the company’s master budget operating income for the period?
3. What was the total master (static) budget variance, in terms of operating income, for the period? Is this variance favorable (F) or unfavorable (U)? Why?
4. From the information given above, are you able to decompose the total master (static) budget variance into a total flexible-budget variance and a sales volume variance? Why or why not?
5. Define the meaning of the total flexible-budget variance and the sales volume variance.
Verified
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Flexible budget operating income is calculated using actual sales units and master budget rates. The operating income will be sales deducted from operating expenses which are both fixed and variable. Sales volume variance is difference between master budget contribution margin or operating income and flexible budget contribution margin or operating income. F signifies that the result is favorable and U signifies that result is unfavorable.
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