Question

Samson Inc. prepared a budget last period that called for sales of 40,000 units at a price of $25 each. The costs per unit were estimated to amount to $13 variable and $6 fixed. During the period, production was equal to actual sales of 38,000 units. The selling price was $26 per unit. Variable costs were $13.25 per unit. Fixed costs actually incurred were $250,000. Required: a) Prepare a report to show the difference between the actual contribution margin per the static budget and the budgeted contribution margin per the flexible budget. b) Explain the significance of the comparisons.

Answer 1

	Actual	Difference ( Actual- Flexible)		Flexible Budget	Difference ( Flexible- Master)		Master Budget
No. Of Unit	38000			38000			40000
Sales revenue	$9,88,000	$38,000	F	$9,50,000	-$50,000	UF	$10,00,000
Less:
Variable Cost	$5,03,500	$9,500	UF	$4,94,000	-$26,000	F	$5,20,000
Contribution Margin	$4,84,500	$28,500	UF	$4,56,000	-$24,000	F	$4,80,000
Less:
Fixed Cost	$2,50,000	$10,000	UF	$2,40,000	$0		$2,40,000
Operating profit	$2,34,500	$18,500	F	$2,16,000	-$24,000	UF	$2,40,000

b) result of Difference between actual and flexible budget shows the manufacturing variance and sales price variance . Result ofDifference between Flexible Budget and Master budget showss the Sales Activity Variance.