A company has performed the following analysis for its operations PROFIT VARIANC

Question

A company has performed the following analysis for its operations PROFIT VARIANCE ANALYSIS REPORT Flexible Budget Variance Sales Volume Variance Actual Flexible Master Results Budget Budget Units Sold 20,000 20,000 5,000 U 25,000 Sales 120,000 137,500 Variable Cost 2,000 U 50,000 12,500 F 62,500 Cont. Margin 15,000 U 75,000 Fixed Cost 30,000 5,000 F 35,000 35,000 Operating Income 13,000 F 5,000 U S 40,000 The flexible budget contribution margin (G) should be Select one O a, $65,000 b. $60,000 O c. $75,000 O d, $90,000

Explanation / Answer

Answer is $60,000.

Master Budget:

Number of units sold = 25,000
Contribution Margin = $75,000

Contribution Margin per unit = Contribution Margin / Number of units sold
Contribution Margin per unit = $75,000 / 25,000
Contribution Margin per unit = $3.00

Flexible Budget:

Contribution Margin per unit = $3.00
Number of units sold = 20,000

Contribution Margin = Contribution Margin per unit * Number of units sold
Contribution Margin = $3.00 * 20,000
Contribution Margin = $60,000

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