Question

Here are data for the stove division of Appliances Now, which produces and sells a complete line of kitchen stoves:

(In thousands)		Budget			Actual
Revenue		$	16,493		$	17,474
Variable production costs			5,862			6,429
Fixed manufacturing costs			1,880			1,926
Variable selling expenses			452			546
Fixed selling expenses			1,275			1,268
Administrative expenses			4,783			5,541
Operating income		$	2,241		$	1,764

The budget, set at the beginning of the year, was based on estimates of sales and costs. Administrative expenses include charges by corporate headquarters for providing strategic guidance. These fixed costs are allocated to divisions using revenues as the allocation base.

Assume that a different volume of stoves was sold than was budgeted, and prepare a flexible budget using the change in revenue to adjust the variable costs. Calculate budget variances?

Static			Flexible						Flexible
	budget	budget						Actual    budget Variance

   (    )    ____    ____    _____    ______

   ( ) _____    ____ _____    ______

( )    _____    _____ ____    _____

(    )    ______    ______    ____ _____

(    ) _____ _____ _____ ____

( )    _____    _____ _____ _____

( )    _____ ______ ____    $_____

  

(    ) $_____    $ _____    $______

Can chose (Revenues, Fixed selling expense, total costs, administrative expense, variable selling expense, fixed manufacturing cost, operating income, variable production cost) in the bracket.

Answer 1

	Actual	Revenue and spending variance		Flexible budget	Activity variance		Static budget
Revenue	17474	0		17474	981		16493
Expenses
Variable production cost	6429	218	U	6211	349	U	5862
Fixed manufacturing cost	1926	46	U	1880	0		1880
Variable selling expense	546	67	U	479	27	U	452
Fixed selling expense	1268		F	1275	0		1275
Administrative expense	5541	474	U	5067	284	U	4783
Total cost	15710	798	U	14912	660	U	14252
Operating income	1764	798	U	2562	321	F	2241