Question

Determining flexible budget variances Exercise 8-5B Use the standard price and cost data provided in Exercise 8-1B. Assume the actual sales price was $14.75 per unit and the actual variable cost was $6.80 per unit. The actual fixed manufacturing cost was $33,500, and the actual selling and administrative expenses were $23,500. Required a. Determine the flexible budget variances. b. Classify the variances as favorable or unfavorable. c. Provide another name for the fixed cost flexible budget variances. d. Comment on the usefulness of the variances with respect to performance evaluation and identify the member(s) of the management team that is (are) most likely to be responsible for these variances.

Answer 1

Flexible budget is budget prepared for finding the variance between actual performance and budgeted performance. The flexible budget is depend on the volume of sale, as volume changes the budget will also change. The management can take the corrective measures for increasing revenue and reducing the cost of the organisation.

ASB Flexible budget variances and classification of Variances as favourable or unfavourable is as follows: arton favohet particulars Flexible actual variana Favourable Budget results units 18000 18000 Isales Revenue 270000/265500 4500 unfavorable lesso Varible cost (126,000 1, 22400) 3,600 Favorable contribution Margin 144000 143,100 qoo unfavorable Fixed manufacturing (32.500 $3.500 1000 unfavorable cost selling of administrative (24ood (23,500) 500 Favorable cost Net Income 187,500 86,100 1400 onfexorable 0 flexible budget Another name for the fixed cost Variance is spending variance d) The usefulness of this variances that we con compare the actual performance with the Budgeted target. The management can take the decision of reduce the unfavourable variance and increase the favourable variances. The corrective measures can be taken to improve the position of the organisation.