Question

In September, Larson Inc. sold 45,000 units of its only product for $306,000, and incurred a total cost of $285,000, of which $31,000 was fixed costs. The flexible budget for September showed total sales of $360,000. Among variances of the period were: total variable cost flexible-budget variance, $6,500U; total flexible-budget variance, $75,000U; and, sales volume variance, in terms of contribution margin, $33,000U.

The budgeted fixed cost for September, to the nearest dollar, was:

Multiple Choice

$117,000.

$37,500.

$16,500.

$81,500.

$96,000.

Answer 1

Budgeted Sales = $ 360,000
Actual Sales = $ 305,000
Flexible Sales Variance = Budgeted Sales - Actual Sales = 360000-305000 = $ 55,000 U

Flexible Variable cost variance + Flexible Fixed cost Variance + Flexible sales variance = Total Flexible budget Variance
or, 6500 U + Flexible Fixed cost Variance + 55000 U = 75000 U
or, Flexible Fixed cost Variance = 75000-55000-6500 = $ 14,500 U

Actual Fixed cost = $ 31,000
Budgeted Fixed cost = Actual Fixed cost - Unfavorable Flexible fixed cost variance
= 31000-14500 = $ 16,500

Hence, the answer is Option 3 ,i.e., $ 16,500.