2. (10 pts) The following data are for the month of January for the Soloway Comp

Question

2. (10 pts) The following data are for the month of January for the Soloway Company. Assume the cost driver is the number of units sold. Static budget data: Sales of 9,000 pairs at $90 per pair Variable costs of $69 per pair Total fixed costs $108,000 Actual results: Sales of 9,600 pairs at $87 per pair Variable costs of $72 per pair Total fixed costs $109,200 A) What is the static budget operating income? B) What is the sales activity variance for operating income? C) What is the flexible budget variance for operating income? nn Ortoher 1,20X7

Explanation / Answer

Calculate following :

A) Static budget operating income : Static budget contribution margin-fixed cost

= (90-69*9000)-108000

Static budget operating income = 81000

b) Sales activity varianc for operating income = change in activity*static budget contribution margin per unit

= (9000-9600)*21

Sales activity varianc for operating income = 12600 Favourable

c) Flexible budget variance for operating income = Flexible budget operating income-actual operating income

= (90-69*9600-108000) - (87-72*9600-109200)

Flexible budget variance for operating income = 58800 Unfavourable

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