Delivery Expense: ____________________ Buying Expense:______________________ Fou

Question

Delivery Expense: ____________________ Buying Expense:______________________

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: Variable (per Cost Fixed unit sold) $5.60 $0.80 Cost of Goods Sold $0 Selling and Promotion $205,000 Expense Building Occupancy $0.10 $0.40 $0.10 $0.03 $185,000 Expense Buying Expense Delivery Expensee Credit and Collection $160,000 $120,000 $74,000 Expense Expected unit sales in 2014 were 1,250,000, and 2014 total revenue was expected to be $12,500,000. Actual 2014 unit sales turned out to be 1,050,000, and total revenue was $10,500,000. Actual total costs in 2014 were: Cost of Goods Sold $6,000,000 Selling and Promotion Expense $900,000 Building Occupancy Expense $360,000 $520,000 $180,000 $80,000 Buying Expense Delivery Expensee Credit and Collection Expense

Explanation / Answer

                                                                   Flexible Budget            Actuals                 Variance

Units sold                                                         1,050,000            1,050,000                   -

Sales $10 per unit                                            $10,500,000          $10,500,000                -

Cost of goods sold $5.60 per unit                        $5,880,000          $ 6,000,000              (-)-$120,000

Selling and promotion expense       $1,045,000          $     900,000                $ 145,000

($0.80 plus $205,000 for flexible budget)

Building Occupancy expense          $ 290,000 $ 360,000    (-)$ 70,000               

($0.10 per unit plus $ 185000 for flexible budget)                  

Buying expense                                                   $ 580,000              $ 520,000                  $ 60,000

($0.4 per unit plus $160000 for flexible budget )

Delivery expense                                                   $225,000              $180,000                   $ 45,000

($0.10 per unit plus $120000 for flexible budget )

Credit and collection expense                                $105,500              $ 80,000                   $ 25,500

($0.03 per unit plus $74000 for flexible budget )

Total expense                                                   $8,125,500          $8,040,000                 $ 85,500

Net Income                                                        $2,374,500          $2,460,000                 $ 85,500

The process of flexible Budget is that ,the unit cost needs to be applied to the actual units produced and sold .

Fixed costs are included in each expense item in the flexible budget since the actual figures are spent upto the level of variable cost plus fixed cost also.

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