Q17E - Horngren'S Financial And Managerial Accounting

Question

Question: Top managers of Marshall Industries predicted 2018 sales of 14,800 units of its product at a unit price of \(9.50. Actual sales for the year were 14,600 units at \)12.00 each. Variable costs were budgeted at \(2.00 per unit, and actual variable costs were \)2.10 per unit. Actual fixed costs of \(48,000 exceeded budgeted fixed costs by \)4,000. 

Prepare Marshall’s flexible budget performance report. What variance contributed most to the year’s favorable results? What caused this variance?

Step-by-Step Solution

Answer

Answer

The flexible budget performance reports are prepared as per the data provided which is shown in step 1. 

The favorable revenue flexible variance of $36,500 is contributing the most. The variance was favorable as the selling price was higher than the budgeted selling price as per step 2 of the solution.

Step 1 Preparation of flexible budget

Murphy Company
Flexible Budget Performance Report
For the year ended July 31, 2018
	Actual ($)	Flexible Budget ($)  Variance	Flexible Budget ($)	Sales Volume Variance	static budget
Units	14,600		14,600		14,800
Sales Revenue	175,200	36,500 F	138,700	1,900 U	140,600
Variable expenses	-30,660	1,460 U	-29,200	400 F	-29,600
Contribution Margin	144,540	35,040 F	109,500	1,500 U	111,000
Fixed Expenses	-48,000	4,000 U	-44,000	0	-44,000
Operating Income	96,540	31,040 F	65,500	1,500 U	67,000

Step 2: Requirements 2 and 3

The favorable revenue flexible budget variance is $36,500 which has contributed the most to the year’s favorable results. 

The variance occurred in favorable as actual selling price per unit is higher in comparison to the budgeted selling price.