Question

For CVS Brand Products 2017 year end, the following budgeted and actual results are available for the bagged popcorn department:

	Budget	Actual
Bags of popcorn sold	10,000	13,000
Selling price	$5	$4.75
Variable costs per bag	$2	$1.75
Fixed costs	$8,000	$6,500

Prepare the Static, Flexible, and Actual budgets for the popcorn department for 2017. Determine the static budget variance, the flexible budget variance, the total sales volume variance, indicating (F) favorable or (U) unfavorable for each line item in the budget.

Specifically for direct labor hours, cost of $1.20 per bag was budgeted, but $0.95 was the actual cost per bag. Break down the price variance and efficiency variances for direct labor.

Answer 1

	(1)	(2) = (1) - (3)		(3)	(4) = (3) - (5)		(5)	(6) = (1) - (5)
	Actual Results	Flexible Budget Variance		Flexible Budget	Sales Volume Variance		Static Budget	Static Budget Variance
Units sold	13000	0		13000	3000	F	10000	3000	F
Sales revenue	61750	3250	U	65000	15000	F	50000	11750	F
Variable costs	22750	3250	F	26000	6000	U	20000	2750	U
Contribution margin	39000	0	None	39000	9000	F	30000	9000	F
Fixed costs	6500	1500	F	8000	0	None	8000	1500	F
Net operating income	32500	1500	F	31000	9000	F	22000	10500	F

Direct labor price variance = (AQ x AP) - (AQ x SP) = (13000 x $0.95) - (13000 x $1.20) = $12350 - $15600 = $3250 F

Direct labor efficiency variance = (AQ x SP) - (SQ x SP) = (13000 x $1.20) - (10000 x $1.20) = $15600 - $12000 = $3600 U