Question

As part of its comprehensive planning and control system, Mopar Company uses a master budget and subsequent variance analysis. You are given the following information that pertains to the company’s only product, XL-10, for the month of December.

EXHIBIT 14.4 Breakdown of Total Operating Income Variance SCHMIDT MACHINERY COMPANY Analysis of Financial Results For October 2019 (3) Flexible-Budget Flexible Variances Budget (1) (2) (4) Sales Volume Variances Master (Static) Budget Actual Units 780 780 2200 1,000 Sales Variable costs Contribution margin Fixed costs Operating income $639,600 350,950 $288,650 160,650 $128,000 $15,600F 50F $15,650F 10,6500 $5,000F $624,000 351,000 $273,000 150,000* $123,000 $176,0000 99,000F $ 77,000U $800,000 450,000 $350,000 150,000 $200,000 $ 77,000U Analysis of Total Operating-Income Variance Total operating-income variance** =$128,000-$200,000=$72,000U Flexible-budget variance =$128,000 - $123,000 =$5,000F Sales volume variance =$123,000 - $200,000 =$77,000U *Budgeted fixed factory overhead cost = $120,000: budgeted fixed selling and administrative expense = $30,000. **Also called the total master (static) budget variance. Note: U denotes an unfavorable effect on operating income: F denotes a favorable effect on operating income

Required:

1. Using text Exhibit 14.4 as a guide, complete the missing parts of the following profit report for December.

2. Based on your completed profit report, determine the dollar amount, and label (Favorable or Unfavorable) each of the following variances for December:

a. Total master (static) budget variance (also referred to as the total operating income variance for the period).

b. Total flexible-budget variance.

c. Sales volume variance, in terms of operating income.

d. Sales volume variance, in terms of contribution margin.

e. Selling price variance.

Answer 1

Answer is given below with full working

Income Statement Performance Report Flexible-budget Variances Units Sales Revenue Less: Variable Cost Contribution Margin Less: Fixed Cost Soj Results 120,000 $600,000 $456,000 $144,000 $80,000 Sales volume Master variance Budget 110,000 $50,000 FT $550,000 $30,000 $330,000 $20,000 F $220,000 $95,000 Budget 120,000 $600,000 $360,000 $240,000 $95,000 $96,000 $96,000 -$15,000 F $0 Operating Income $64,000 $81,000 U $145,000 $20,000 F $125,000 a Total Master budget variance $61,000 Unfavourable b Total Flexible Budget variance $81,000 Unfavourable C Sales volume variance, in terms of Operating Income $20,000 Favourable d Sales volume variance, in terms of Contribution margin $20,000 Favourable e Selling price variance None