Kevin Jarvis is the controller of Bitterroot Industries. Kevin prepared the foll
ID: 2545415 • Letter: K
Question
Kevin Jarvis is the controller of Bitterroot Industries. Kevin prepared the following budgeted income statement at various levels of sales. After careful review of the budgeted income statements, and after discussions with the sales and production managers, the CEO determines that the best alternative is to base the budget on a sales volume of 30,000 units.
20,000
30,000
40,000
Sales
$1,240,000
$1,860,000
$2,480,000
Variable costs
Direct material
340,000
510,000
680,000
Direct labor
300,000
450,000
600,000
Overhead
360,000
540,000
720,000
Total variable costs
1,000,000
1,500,000
2,000,000
Contribution margin
240,000
360,000
480,000
Fixed costs
Overhead
62,000
62,000
62,000
Rent
46,000
46,000
46,000
Insurance
28,000
28,000
28,000
Advertising
15,000
15,000
15,000
Total fixed costs
151,000
151,000
151,000
Operating income
$89,000
$209,000
$329,000
Actual results for the year were 28,000 units, reflected in the following income statement:
28,000
Sales
$1,764,000
Variable costs
Direct material
504,000
Direct labor
434,000
Overhead
509,600
Total variable costs
1,447,600
Contribution margin
316,400
Fixed costs
Overhead
64,200
Rent
45,800
Insurance
29,100
Advertising
14,000
Total fixed costs
153,100
Operating income
$163,300
What is the flexible budget variance for direct material?
What is the flexible budget variance for direct labor?
What is the sales volume variance for direct material?
What is the flexible budget variance for variable overhead?
20,000
30,000
40,000
Sales
$1,240,000
$1,860,000
$2,480,000
Variable costs
Direct material
340,000
510,000
680,000
Direct labor
300,000
450,000
600,000
Overhead
360,000
540,000
720,000
Total variable costs
1,000,000
1,500,000
2,000,000
Contribution margin
240,000
360,000
480,000
Fixed costs
Overhead
62,000
62,000
62,000
Rent
46,000
46,000
46,000
Insurance
28,000
28,000
28,000
Advertising
15,000
15,000
15,000
Total fixed costs
151,000
151,000
151,000
Operating income
$89,000
$209,000
$329,000
Explanation / Answer
Fexible budget variance for direct material=504000-(510000/30000*28000)= $28000 Unfavorable Flexible budget variance for direct labor=434000-(450000/30000*28000)= $14000 Unfavorable Sales volume variance for direct material=510000-504000 = $6000 Favorable Flexible budget variance for variable overhead=509600-(540000/30000*28000)= $5600 Unfavorable
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.