Question

As the new accountant for Cohen & Co., you have been asked to provide a succinct analysis of financial performance for the year just ended. You obtain the following information that pertains to the company's sole product: Master (Static) Budget 50,000 $458,000 278,000 143,000 Actual 45,000 $412,000 242,000 Units sold Sales Variable costs Fixed costs 151,000 Required: 1. What was the actual operating income for the period? 2. What was the company's master (static) budget operating income for the period? 3. (a) What was the total master (static) budget variance, in terms of operating income, for the period? (b) Is this variance favorable (F) or unfavorable (U)? (Note: The total master (static) budget variance is also referred to as the total operating income variance for the period.) (If a variance has no amount, select "None" in the corresponding dropdown cell.) 4. The total master (static) budget variance for a period can be decomposed into a total flexible-budget variance and a sales volume variance. (a) What was the total flexible-budget variance for the period? (b) Was this variance favorable (F) or unfavorable (U)? (c) What was the sales volume variance for the period? (d) Was this variance favorable (F) or unfavorable (U)? (Do not round your intermediate calculations. If a variance has no amount, select "None" in the corresponding dropdown cell.)

Answer 1

	Actual	Master (static) budget	Flexible budget
Units sold	45,000	50,000	45,000
Sales	412,000	458,000	412,200 *
(-) variable cost	(242,000)	(278,000)	(250,200)*
Contribution margin	170,000	180,000	162,000
(-) Fixed cost	(151,000)	(143,000)	(143,000)*
Operating income	19,000	37,000	19,000

* 412,200= (458,000×45,000)÷50,000

* 250,200= (278,000×45,000)÷50,000

* Budgeted fixed cost does not change with output level.

Actual operating income	19,000
Master budget operating income	37,000
Total master budget variance	18,000	U
Total flexible-budget variance	0	none
Sales volume variance	18,000	U

Sales volume variance = Flexible budget operating income- Master budget operating income

= 19,000-37,000

=18,000 (U)

Total flexible-budget variance=Actual operating income- flexible budget operating income

=19,000-19,000

=0.

Total master budget variance= sales volume variance+ flexible budget variance

= (18,000)+(0)

= 18,000 (U)

____×____

All the best

Any doubt regarding the answer comment below