4. Archer\'s cust accountant prepared the fuwing stalic budget based un expected

Question

4. Archer's cust accountant prepared the fuwing stalic budget based un expected activity of 4,000 units for the May 2018 accounting period: S60,000 32,000 Sales Revenuc Variable Costs Contribution Margin $28,000 Fixed Costs Net Income 20,000 $8,000 If Archer's sales manager were to prepare a flexible budget for expected activity of 5,000 units, budgeted net income on this flexible budget would be? a. b. If Archer actually produced and sold 5,000 units at $18 each, what is the sales revenue activity/volume variance? c. If Archer actually incurred the following costs during May 2018 Sales Revenuc Variable Costs $80,000 35,000 Contribution Margin $45,000 Fixed Costs Net Income 12,000 $33,000 The flexible budget variance for: i. Fixed costs: ii. Variable costs: Indicate favorable /unfavorable variances for full credit

Explanation / Answer

Selling price per unit = Sales revenue / Number of units = 60,000 / 4,000 = 15

Variable costs per unit = Variable costs / Number of units = 32,000 / 4,000 = 8

a.

b.

Flexible budget sales revenue = 5,000 units * 15 = 75,000

Static budget sales revenue = 60,000

Sales revenue volume variance = Flexible budget sales revenue - Static budget sales revenue

= 75,000 - 60,000

= 15,000 Favourable

c.

Flexible budget variance = Actual - Flexible

Fixed costs = 12,000 - 20,000 = 8,000 Favourable

Variable costs = 35,000 - 40,000 = 5,000 Favourable

Sales revenue (5,000*15) 75,000 Variable costs (5,000*8) 40,000 Contribution margin 35,000 Fixed costs 20,000 Net income 15,000

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