Question

Winslow Corporation prepared a budget last period that called for sales of 20,000 units at a price of $25 each. The costs per unit were estimated to amount to $15 variable and $6 fixed.

During the period, actual production and sales were 22,000 units. The actual selling price was $24 per unit. Variable costs were $17 per unit. Fixed costs    actually incurred were $125,000.

                              Required:

1. Prepare operating statements for the actual output, as well as a static budget and a flexible budget.
2. Explain what is indicated when comparing the operating statements.

Answer 1

B. We conclude that profit from actual sales is just $ 29000 as compared to flexible and static budget.

Increase in sales from 20000 units to 22000units do not lead to increase in contribution due to increase in variable cost per unit from 15 per unit to 17 per unit and decrease in sale price per unit by $1 .

And also fixed cost is higher in actual sales which also lead to decline in profits.

Company has to take measures for reducing its fixed and variable cost for increasing its overall profits.