1. Prepare a static budget based variance analysis of the September performance.
ID: 2456681 • Letter: 1
Question
1. Prepare a static budget based variance analysis of the September performance.
2.prepare a flexible budget based variance analysis of the September performance.
3. Why might bank management find the flexible budget based variance more informative that the static budget based variance? Explain. 7-18 Flexible-budget preparation and analysis. Bank Management Printers, Inc., produces luxury checkbooks with three checks and stubs per page. Each checkbook is designed for an individual customer and is ordered through the customer's bank. The company's operating budget for September 2014 included these data: Number of checkbooks Selling price per book Variable cost per book Fixed costs for the month 5,000 $ 20 $145,000 The actual results for September 2014 were as follows: Number of checkbooks produced and sold Average selling price per book Variable cost per book Fixed costs for the month 12,000 $ 21 $150,000 The executive vice president of the company observed that the operating income for September was much lower than anticipated, despite a higher-than-budgeted selling price and a lower-than-budgeted variable cost per unit. As the company's management accountant, you have been asked to provide explanations for the disappointing September results. Bank Management develops its flexible budget on the basis of budgeted per-output-unit revenue and per-output-unit variable costs without detailed analysis of budgeted inputs. Prepare a static-budget-based variance analysis of the September performance. Prepare a flexible-budget-based variance analysis of the September performance. Why might Bank Management find the flexible-budget-based variance analysis more informative than the static-budget-based variance analysis? Explain your answer. . 2. 3.
Explanation / Answer
Answer: 1 & 2
3)
Flexible budget variance analysis is more useful than static budget variance analysis, because the analysis made through flexible budget is more logical. It takes into account the change in level of activity while analysis and thereby provides more insightful picture of the variance making responsible appropriate person responsible for it.
Static budget: Flexible Budget Actual Result In $ In $ In $ In $ In $ In $ Per unit Total Activity variance Unfavorable/ Favorable Per unit Total Spending Variance Unfavorable/ Favorable Per unit Total Number of check books 15000 12000 12000 Selling price 20 300000 60000 U 20 240000 12000 F 21 252000 Less: Variable cost 8 120000 24000 F 8 96000 12000 F 7 84000 Less: Fixed cost 145000 0 145000 0 145000 Operating profit 35000 36000 U -1000 24000 23000Related Questions
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