In this problem, you must create the flexible budget and flexible budget varianc

Question

In this problem, you must create the flexible budget and flexible budget variances for two cost items. 1. Before you compute the variance, you must identify the parameters of the cost functions (i.e., the fixed cost and the variable cost per unit) 2. Be careful to use the correct activity measure. 3. Read the directions about the sign that you should enter Four Flags is a retail department store. On January 1, 2017, Four Flags' accountants used the following data to develop the master budget for Four Flags for 2017: Cost Cost of Goods Sold Selling and Promotion Expense Building Occupancy Expense Buying Expense Delivery Expense Credit and Collection Expense Fixed $0 $205,000 $180,000 $150,000 $100,000 80,000 Variable (per unit sold) $5.40 $0.80 $0.20 $0.50 $0.05 $0.03 Expected unit sales in 2017 were 1,250,000, and 2017 total revenue was expected to be $12,500,000. Actual 2017 unit sales turned out to be 1,000,000, and total revenue was $10,000,000. Actual total costs in 2017 were: Cost of Goods Sold Selling and Promotion Expense Building Occupancy Expense Buying Expense Delivery Expense Credit and Collection Expense $6,000,000 $1,000,000 $420,000 $650,000 $160,000 $35,000 Required Compute the flexible-budget variances in 2017 for the following two cost items (NOTE: enter favorable variances as positive numbers and unfavorable variances as negative numbers): Building Occupancy Expense Selling and Promotion Expense

Explanation / Answer

working:

building occupancy expense budgeted for 1,000,000 units = $180,000 + ($0.20*1,000,000) =>$380,000.

actual building occupancy expense = $420,000.

variance = $380,000 - 420,000 =>-$40,000.......(since actual is greater than budgeted expense, we have unfavourable variance).

now,

selling and promotion expense.

budegeted for 1,000,000 units =$205,000 + ($0.80*1,000,000)=>$1,005,000.

actual = $1,000,000.

variance = $1,005,000 - 1,000,000 =>$5,000.....(favorable since actual expense is less than budgeted expense).

building occupancy expense -$40,000 selling and promotion expnese $5,000

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