Question

Four Flags is a retail department store. On January 1, 2017, Four Flags' accountants used the following data to develop the master budget for Four Flags for 2017: Cost Fixed Variable (per unit sold) Cost of Goods Sold $0 $5.80 Selling and Promotion Expense $215,000 $0.80 Building Occupancy Expense $190,000 $0.10 Buying Expense $140,000 $0.50 Delivery Expense $110,000 $0.05 Credit and Collection Expense $72,000 $0.01 Expected unit sales in 2017 were 1,200,000, and 2017 total revenue was expected to be $12,000,000. Actual 2017 unit sales turned out to be 1,050,000, and total revenue was $10,500,000. Actual total costs in 2017 were: Cost of Goods Sold $6,000,000 Selling and Promotion Expense $900,000 Building Occupancy Expense $460,000 Buying Expense $660,000 Delivery Expense $200,000 Credit and Collection Expense $55,000 Required Compute the flexible-budget variances in 2017 for the following two cost items (NOTE: enter favorable variances as positive numbers and unfavorable variances as negative numbers): Credit and Collection Expense Cost of Goods Sold

Answer 1

Answer:

Actual units sold = 1,050,000

Credit and Collection Expense:

Flexible budgeted for Credit and collection expense = Budgeted Fixed Credit and collection expense + Actual quantity cold * Budgeted Variable Credit and collection expense

= $72,000 + 1,050,000 * $0.01 = $82,500

Actual Credit and Collection Expense = $55,000

Flexible-budget variances for cost of goods sold = $82,500 - $55,000 = $27,500

Cost of Goods sold:

Flexible budgeted for cost of goods sold = Actual quantity sold * Budgeted variable cost of goods sold (per unit) = 1,050,000 * $5.60 = $5,880,000

Actual cost of goods sold = $6,000,000

Flexible-budget variances for cost of goods sold = $5,880,000 - $6,000,000 = - $120,000