Featured Exercises 1. Vermillion Company’s actual results and static budget for
ID: 2484068 • Letter: F
Question
Featured Exercises 1. Vermillion Company’s actual results and static budget for last month are as follows: Actual Results Static Budget Units sold 12,000 10,000 Revenues $119,200 $100,000 Variable costs 68,800 60,000 Contribution margin 50,400 40,000 Fixed costs 34,000 30,000 Operating income $ 16,400 $ 10,000 a. Compute the flexible-budget operating income. b. Compute the static-budget variance for operating income and indicate whether it is favorable or unfavorable. c. Compute the flexible-budget variance for operating income and indicate whether it is favorable or unfavorable. d. Compute the sales-volume variance for operating income and indicate whether it is favorable or unfavorable. e. Compute the selling-price variance and indicate whether it is favorable or unfavorable. f. Without using any of the variances computed in (b) through (e), present computations to explain why actual operating income exceeds static-budget operating income by $6,400. 2. Randall Company’s data for direct manufacturing labor for last month are as follows: Actual hours worked 20,000 Standard hours allowed for actual output 21,000 Price variance unfavorable $3,000 Payroll liability $126,000 Compute the efficiency variance for direct manufacturing labor.
Explanation / Answer
(a) Flexible-budget operating income = $6,000.
(b) . Static-budget variance for operating income is $6,400 & it is unfavorable.
(c). Flexible-budget variance for operating income is $4,000 and it is favorable.
(d) Sales-volume variance for operating income is ($2,740) and it is unfavorable. Sales-volume variance for Optg. Income = Budgeted Optg.Income per unit price per unit x (Actual units - Budgeted units) = (16,400/12,000) x (10,000-12000) = $1.37 x - 2000 = ($2,740)
(e) Compute the selling-price variance is $700 and it is favorable.
Sales Price Variance = Actual quantity sold (AQxBP) - (AQxAP) = (10,000 x 119,200/12,000) - (10,000 x 100,000/10,000) = 10,000 x (- 0.07) = $700 (F)
(Actual units sold - Budgeted units sold) x Budgeted price per unit
= Sales volume variance
An unfavorable variance means that the actual number of units sold was lower than the budgeted number sold.
(a) Operating Income under Flexible Budget Per unit Actual results a Units sold 1.00 10,000 b Revenue ($) 10.00 100,000 c Variable Costs($) 6.00 60,000 d Contribution Margin 4.00 40,000 e Fixed Cost (S) 3.40 34,000 f Operating Income ($) 0.60 6,000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.