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

Exercise 26

The Baldwin Company, in its master budget for 2010, predicted total sales of $160,000, variable costs of $48,000, and fixed costs of $52,000 ($24,000 manufacturing and $28,000 nonmanufacturing). Actual sales revenue for 2010 turned out to be $180,000. Actual costs were as follows: variable, $54,000, and fixed, $50,000. What was the total static budget (operating-income) variance for 2010? Was this total variance favorable (F) or unfavorable (U)?

Step 1 of 3

Operating income is revenue minus all the operating expenses including fixed costs as well as variable costs. Operating income budget variance is the difference between the actual operating income minus the budgeted operating income. F signifies that the result is favorable and U signifies that result is unfavorable.