Four Flags is a retail department store. On January 1, 2010, Four Flags\' accoun

Question

Four Flags is a retail department store. On January 1, 2010, Four Flags' accountants used the following data to develop the master budget for Four Flags for 2010:

COSTS

Fixed Variable (per sales dollar)

Cost of Goods Sold
$0 $0.560
Selling and Promotion Expense
$210,000 $0.080
Building Occupancy Expense
$190,000 $0.010
Buying Expense
$160,000 $0.040
Delivery Expense
$120,000 $0.005
Credit and Collection Expense
$76,000 $0.003

Expected unit sales in 2010 were 1,200,000, and 2010 total revenue was expected to be $12,000,000. Actual 2010 unit sales turned out to be 1,100,000, and total revenue was $11,000,000. Actual costs in 2010 were:

Cost of Goods Sold $6,000,000
Selling and Promotion Expense $1,000,000
Building Occupancy Expense $340,000
Buying Expense $560,000
Delivery Expense $160,000
Credit and Collection Expense $20,000



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

Selling and Promotion Expense???????

Delivery Expense????????

Explanation / Answer

Selling and Promotion Expense
=  [$210,000 + ($0.08 x 11,000,000)] - $1,000,000
= $1,178,000 - $1,000,000 = -$178,000

Delivery Expense
= [$120,000 + ($0.005 x 11,000,000)] - $160,000
= $175,000 - $160,000 = -$15,000

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