Question

You are given the following static budget report:

Budget            Actual              Variance

Unit Sales                                           10,000               15,000             5,000 F

Variable Expenses:

    Commissions                                  $30,000 $33,000 $3,000 U

    Advertising                                      $1,000 $1,200 $200 U

    Travel                                              $10,000 $11,000 $1,000 U

    Samples                                          $2,500 $2,300 $200 F

Total Variable                                     $43,500 47,500 $4,000 U

Fixed Expenses

    Rent                                                 $5,000 $5,000 0

    Salaries – Sales                               $2,000 $2,000 0

    Salaries – Office                              $1,200 $1,200 0

    Depreciation                                    $1,500 $1,500 0

Total Fixed                                          $9,700 $9,700             0

Total Expenses $53,200 $57,200 $4,000 U

Prepare a flexible budget analysis and explain whether you believe that costs were controlled.  How do the results of the flexible budget differ from the results of the static budget?

Answer 1

unit sales	15000	0	15000	5000 F	10000
variable expense
commission	33000	12000 F	45000      [30000*15000/10000]	15000 U	30000
Advertising	1200	300 F	1500     [1000*15000/10000]	500 U	1000
Travel	11000	4000 F	15000          [10000*15000/10000]	5000 U	10000
samples	2300	1450 F	3750     [2500*15000/10000]	1250 U	2500
Total variable cost	47500	17750 F	65250	21750 U	43500
Fixed cost
Rent	5000	0 NA	5000	0NA	5000
salaries -sales	2000	0 NA	2000	0 NA	2000
salaries -office	1200	0 NA	1200	0NA	1200
Depreciation	1500	0 NA	1500	0 NA	1500
Total fixed cost	9700	0 NA	9700	0 NA	9700
Total expense	57200	17750 F	74950	21750 U	53200

**Since the flexible budget variance is favorable ($ 17750) cost is controlled.