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

Exercise 51

Sales Variances; Flexible-Budget Variance; Review of Chapter 14 Robinson Company has two products, A and B. Robinson’s budget for August follows:

Master Budget
	Product A	Product B
Sales	$240,000	$300,000
Variable cost	140,000	180,000
Contribution margin	$100,000	$120,000
Fixed cost	80,000	40,000
Operating income	$ 20,000	$ 80,000
Selling price	$ 120	$ 50

On September l, these operating results for August were reported:

Operating Results
	Product A	Product B
Sales	$180,400	$341,120
Variable cost	106,600	216,480
Contribution margin	$ 73,800	$124,640
Fixed cost	80,000	40,000
Operating income	$ (6,200)	$ 84,640
Units sold	1,640	6,560

Required

1. For each product determine the following variances measured in contribution margin:

a. Flexible budget variance.

b. Sales volume variance.

c. Sales quantity variance.

d. Sales mix variance.

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2. Explain the flexible budget variance using selling price and variable cost variances.

Step 1 of 3

Budget and variance:

Budget is a statement prepared by the management of the business entity which helps them to estimate the expenses, income, receipts, payment, sales and purchases during the period. It is prepared keeping in mind the companies’ objectives and abilities with respect to resources they have. Often businesses deviate from their budgeted figures either in favourable way or unfavourable way. Such deviations are commonly referred to as variances.