Four Flags is a retail department store. On January 1, 2014, Four Flags\' accoun

Question

Four Flags is a retail department store. On January 1, 2014, Four Flags' accountants used the following data to develop the master budget for Four Flags for 2014:

Fixed

Variable (per unit sold)

$0

$5.60

$210,000

$0.80

$180,000

$0.10

$150,000

$0.50

$120,000

$0.05

$72,000

$0.01

Expected unit sales in 2014 were 1,300,000, and 2014 total revenue was expected to be $13,000,000. Actual 2014 unit sales turned out to be 1,050,000, and total revenue was $10,500,000. Actual total costs in 2014 were:

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

Credit and Collection Expense :

  Selling and Promotion Expense :

Cost

Fixed

Variable (per unit sold)

Cost of Goods Sold

$0

$5.60

Selling and Promotion Expense

$210,000

$0.80

Building Occupancy Expense

$180,000

$0.10

Buying Expense

$150,000

$0.50

Delivery Expense

$120,000

$0.05

Credit and Collection Expense

$72,000

$0.01

Explanation / Answer

Credit and Collection Expense :

Actual Cost = 25000

Flexible Budget = Fixed Cost + Variable (per unit sold)*Unit Sold

Flexible Budget = 72000 + 0.01*1050000

Flexible Budget = 82500

Flexible-budget variances =   Flexible Budget - Actual Cost

Flexible-budget variances = 82500-25000

Flexible-budget variances = $ 57500 Favorable

Selling and Promotion Expense :

Actual Cost = 1000000

Flexible Budget = Fixed Cost + Variable (per unit sold)*Unit Sold

Flexible Budget = 210000 + 0.80*1050000

Flexible Budget = 1,050,000

Flexible-budget variances = Flexible Budget - Actual Cost

Flexible-budget variances = 1050000 - 1000000

Flexible-budget variances = $ 50000 Favorable

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