Question

The Octova Corporation manufactures two types of vacuum cleaners: the ZENITH for commercial building use and...

The Octova Corporation manufactures two types of vacuum cleaners: the ZENITH for commercial building use and the House-Helper for residences. Budgeted and actual operating data for the year 20X5 are as follows:
Static Budget ZENITH             House-Helper Total
Number sold 23,000 80,000                         103,000
Contribution margin $4,600,000 $24,000,000                 $28,600,000

Actual Results ZENITH             House-Helper Total
Number sold 30,000 60,000 90,000
Contribution margin $4,500,000 $30,000,000                 $34,500,000

a.     Calculate the contribution margin for the flexible budget.  
     ZENITH: ?
     House-Helper: ?
     Flex-Budget Contribution Margin = ?

b.     Determine the total static-budget variance, the total flexible-budget variance, and the total sales-volume variance in terms of the contribution margin.
Static Budget Variance = ?                             
Flex-Budget Variance = ?
Sales-Volume Variance = ?

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Answer #1

Budgeted contribution margin per unit = Budgeted contribution margin / Budgeted sales unit

Zenith = $4,600,000 / 23,000 = $200 per unit

House-Helper = $24,000,000 / 80,000 = $300 per unit

a.

Contribution margin for Flexible Budget = Actual sales units * Budgeted contribution margin per unit

Zenith = 30,000 * $200 = $6,000,000

House-Helper = 60,000 * $300 = $18,000,000

Flexible budget contribution margin = $24,000,000

b.

Static budget variance = Actual results - Static budget

Static budget variance = $34,500,000 - $28,600,000

Static budget variance = $5,900,000 Favorable

Flexible budget variance = Actual results - Flexible budget

Flexible budget variance = $34,500,000 - $24,000,000

Flexible budget variance = $10,500,000 Favorable

Sales volume variance = Flexible budget - Static budget

Sales volume variance = $24,000,000 - $28,600,000

Sales volume variance = $4,600,000 Unfavorable

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