Four Flags is a retail department store. On January 1, 2014, Four Flags\' accoun
ID: 2454353 • Letter: F
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:
Cost
Fixed
Variable (per unit sold)
Cost of Goods Sold
$0
$6.80
Selling and Promotion Expense
$220,000
$0.80
Building Occupancy Expense
$190,000
$0.10
Buying Expense
$140,000
$0.50
Delivery Expense
$115,000
$0.10
Credit and Collection Expense
$76,000
$0.02
Expected unit sales in 2014 were 1,200,000, and 2014 total revenue was expected to be $12,000,000. Actual 2014 unit sales turned out to be 1,000,000, and total revenue was $10,000,000. Actual total costs in 2014 were:
Cost of Goods Sold
$6,000,000
Selling and Promotion Expense
$1,100,000
Building Occupancy Expense
$380,000
Buying Expense
$690,000
Delivery Expense
$190,000
Credit and Collection Expense
$40,000
Required
Compute the flexible-budget variances for the following two cost items (NOTE: enter favorable variances as positive numbers and unfavorable variances as negative numbers):
Buying Expense_______
Credit and Collection Expense ________
Cost
Fixed
Variable (per unit sold)
Cost of Goods Sold
$0
$6.80
Selling and Promotion Expense
$220,000
$0.80
Building Occupancy Expense
$190,000
$0.10
Buying Expense
$140,000
$0.50
Delivery Expense
$115,000
$0.10
Credit and Collection Expense
$76,000
$0.02
Explanation / Answer
Flexible-budget variances for the following two cost items:
Items Flexible budget (1000000units) Actual Flexible budget variance
Buying expenses $140000+($0.5 * 1000000)=$640000 $690000 -$50000
Credit
Collection Expense $76000 + (0.02*1000000)=96000 $40000 $56000
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