Question

Question 1:

Patty, Inc. wishes to evaluate, in summary fashion, its financial performance for the most recent period. Budgeted and actual operating results for this period are presented below.

	Master Budget			Actual Results
Units sold		40,000			36,000
Sales	$	2,000,000		$	1,900,000
Variable costs	$	1,200,000		$	1,152,000
Fixed costs	$	600,000		$	660,000

Calculate (to the nearest dollar): Indicate favorable / unfavorable variances and the meaning of the variance:

1. What is the flexible-budget operating income for the period?

2. What is the total operating-income variance of the period?

3. What is the sales-volume variance, in terms of operating income, for the period?

4. What is the flexible budget variance, in terms of operating income, for the period?

Please explain and show work. Will rate.

Answer 1

	Actual budget	Flexible Variance	Flexible Budget	Activity variance	Master variance
Unit sold	36000		36000		40000
Sales	1900000	100000 F	1800000	200000 U	2000000
Variable cost	1152000	72000 U	1080000	120000 F	1200000
Contribution cost	748000	28000 F	720000	80000 U	800000
Fixed cost	660000	60000 U	600000	0 None	600000
Operating Income	88000	32000 U	120000	80000 U	200000

1) Flexible budget operating income for the period = $ 120000

2) Total operating income variance of the period = 88000-200000= 112000 U

3) Sales volume variance, in terms of operating income, for the period= 80000 U

4) Flexible budget variance, in terms of operating income, for the period= 32000 U