As the new accountant for Cohen & Co., you have been asked to provide a succinct
ID: 2528790 • Letter: A
Question
As the new accountant for Cohen & Co., you have been asked to provide a succinct analysis of financial performance for the year just ended. You obtain the following information that pertains to the company’s sole product:
1. What was the actual operating income for the period?
2. What was the company’s master budget operating income for the period?
3. What was the total master (static) budget variance, in terms of operating income, for the period? Is this variance favorable or unfavorable?
4. From the information given earlier, decompose the total master (static) budget variance by determining the amounts for:
a- The total flexible-budget variance, is this variance favorable or unfavorable?
b- The sales volume variance, is this variance favorable or unfavorable?
As the new accountant for Cohen & Co., you have been asked to provide a succinct analysis of financial performance for the year just ended. You obtain the following information that pertains to the company’s sole product:
Master (Static Actual Budget Units sold 35,000 40,000 Sales $390,000 $375,000 Variable costs $220,000 $220,000 Fixed costs $153,125 $145,000Explanation / Answer
Master (Static Flexible Actual Budget Budget Units sold 35000 40000 35000 Sales 390000 375000 328125 375000/40*35 Variable costs 220000 220000 192500 220000/40*35 Fixed costs 153125 145000 145000 operating income 16875 10000 -9375 1)actual operating income=16875 2)master budget operating income=10000 3)total static budget variance=6875 favorable (in terms of operating income) (16875-10000) 4 a)total flexible budget variance=16875-(-9375) = 26250 favorable (actual operating income-flexible operating income) b)sales volume variance=-9375-10000 =19375 unfavorable (flexible operating income-budgeted operating income)
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