Question

As the new accountant for Cohen & Co., you have 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		35,000			40,000
Sales	$	384,000		$	470,000
Variable costs		214,000			278,000
Fixed costs		137,000			135,000

Required:

1. What was the actual operating income for the period?

2. What was the company’s master (static) budget operating income for the period?

3. (a) What was the total master (static) budget variance, in terms of operating income, for the period? (b) Is this variance favorable (F) or unfavorable (U)? (Note: The total master (static) budget variance is also referred to as the total operating income variance for the period.) (If a variance has no amount, select "None" in the corresponding dropdown cell.)

4. The total master (static) budget variance for a period can be decomposed into a total flexible-budget variance and a sales volume variance. (a) What was the total flexible-budget variance for the period? (b) Was this variance favorable (F) or unfavorable (U)? (c) What was the sales volume variance for the period? (d) Was this variance favorable (F) or unfavorable (U)? (Do not round your intermediate calculations. If a variance has no amount, select "None" in the corresponding dropdown cell.)

As the new accountant for Cohen & Co., you have 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		35,000			40,000
Sales	$	384,000		$	470,000
Variable costs		214,000			278,000
Fixed costs		137,000			135,000

Required:

1. What was the actual operating income for the period?

2. What was the company’s master (static) budget operating income for the period?

3. (a) What was the total master (static) budget variance, in terms of operating income, for the period? (b) Is this variance favorable (F) or unfavorable (U)? (Note: The total master (static) budget variance is also referred to as the total operating income variance for the period.) (If a variance has no amount, select "None" in the corresponding dropdown cell.)

4. The total master (static) budget variance for a period can be decomposed into a total flexible-budget variance and a sales volume variance. (a) What was the total flexible-budget variance for the period? (b) Was this variance favorable (F) or unfavorable (U)? (c) What was the sales volume variance for the period? (d) Was this variance favorable (F) or unfavorable (U)? (Do not round your intermediate calculations. If a variance has no amount, select "None" in the corresponding dropdown cell.)

Answer 1

	Actual	Flexible budget variance	Flexible budget	Sales volume variance	Master budget
Units	35000		35000		40000
Sales	384000	27250 U	411250	58750 U	470000
Variable cost	214000	29250 F	243250	34750 F	278000
Contribution margin	170000	2000 F	168000	24000 U	192000
Fixed cost	137000	2000 U	135000	0 None	135000
Net income	33000	0 none	33000	24000 U	57000

1) Actual operating income = $33000

2) Master budget operating income = $57000

3) Total master budget variance = 57000-33000 = 24000 U

4) Flexible budget variance = 33000-33000 = 0 None

sales volume variance = 57000-33000 = 24000 U