Four Flags is a retail department store. On January 1, 2011, Four Flags\' accoun

Question

Four Flags is a retail department store. On January 1, 2011, Four Flags' accountants used the following data to develop the master budget for Four Flags for 2011:

Cost Fixed Variable (per unit sold)
Cost of Goods Sold $0 $6.80
Selling and Promotion Expense $205,000 $0.80
Building Occupancy Expense $180,000 $0.10
Buying Expense $150,000 $0.30
Delivery Expense $110,000 $0.10
Credit and Collection Expense $74,000 $0.01


Expected unit sales in 2011 were 1,200,000, and 2011 total revenue was expected to be $12,000,000. Actual 2011 unit sales turned out to be 1,000,000, and total revenue was $10,000,000. Actual costs in 2011 were:


Cost of Goods Sold $6,000,000
Selling and Promotion Expense $900,000
Building Occupancy Expense $310,000
Buying Expense $600,000
Delivery Expense $190,000
Credit and Collection Expense $20,000


Compute the flexible-budget variances for the following two cost items (enter favorable variances as positive numbers and unfavorable variances as negative numbers):

Credit and Collection Expense

Selling and Promotion Expense

Explanation / Answer

Credit and collection expense 1,000,000*.01- 20,000= -10,000 Selling and promotion 1,000,000*.80- 900,000= -100,000

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