Question

Personal Assistant Printers, Inc., produces luxury checkbooks with three checks and stubs per page. Each checkbook is designed for an individual customer and is ordered through the customer's bank. The company's operating budget for September 2017 included these data: m (Click the icon to view the operating budget and actual results.) The executive vice president of the company observed that the operating income for September was much lower than anticipated, despite a higher than-budgeted selling price and a lower-than-budgeted variable cost per unit. As the company's management accountant, you have been asked to provide explanations for the disappointing September results Personal Assistant develops its flexible budget on the basis of budgeted per-output-unit revenue and per-output-unit variable costs without detailed analysis of budgeted inputs Read the requirements Requirement 1. Prepare a statio-budget-based variance analysis of the September performance Begin with the actual results, then compute the static budget and the static budget variances. Label each variance as favorable or unfavorable. (Enter an operating loss with a minus signor parentheses) Actual Results Units sold Revenues Variable costs Contribution margin Fixed costs Operating income (loss)

Answer 1

		Actual		static budget		flexible budget
Units sold		11800		15000		11800
revenue	11800*18	212400	15000*17	255000	11800*17	200600
variable cost	11800*6	70800	15000*7	105000	11800*7	82600
contribution margin		141600		150000		118000
fixed cost		135400		130000		130000
operating income		6200		20000		-12000
1- Static budget based variance Analysis
	Actual	Budgeted	Variance = actual-budgeted
Units sold	11800	15000	-3200	Unfavorable
revenue	212400	255000	-42600	Unfavorable
variable cost	-70800	-105000	34200	Favorable
contribution margin	141600	150000	-8400	Unfavorable
fixed cost	-135400	-130000	-5400	Unfavorable
operating income	6200	20000	-13800	Unfavorable
2- flexible budget based variance Analysis
	Actual	flexible budget	Variance = actual-flexible
Units sold	11800	11800	0
revenue	212400	200600	11800	Favorable
variable cost	-70800	-82600	11800	Favorable
contribution margin	141600	118000	23600	Favorable
fixed cost	-135400	-130000	-5400	Unfavorable
operating income	6200	-12000	18200	Favorable
3-	it is always better to compare the performance of actual result with the standard for the same level of output. In flexible budget based variance analysis actual revenue and costs are compared with budgeted revenue and costs for the same level of output so that a better comparison can be done in comparison to static budget baded variance where actual is compared with the standard at different level of output.