Answers
| Requirement 1 & 2 | ||||||||||
| Actual (1) | *Flexible Budget(2) | Static budget(3) | Flexible Budget Variance (4) =(1)-(2) | Sales volume variance(5)=(2)-(3) | Static budget (6)= (1)-(3) | Statis Budget Variance(7)=(6)/(3) | ||||
| Unit (pound) | 360,000 | 360,000 | 348,000 | 12,000 | F | 12,000 | F | 3.45% | ||
| Revenue | 1,839,600 | 1,872,000 | 1,809,600 | 32,400 | U | 62,400 | F | 30,000 | F | 1.66% |
| variable manufacturing cost | 1,400,400 | 1,368,000 | 1,322,400 | 32,400 | U | 45,600 | U | 78,000 | U | 5.90% |
| Contribution Margin | 439,200 | 504,000 | 487,200 | 64,800 | 16,800 | F | 48,000 | U | 9.85% | |
| budgeted selling price per unit =1,809,600/348,000 | ||||||||||
| Budget selling price = 5.20 | 5.20 | |||||||||
| budgeted variable manufacturing cost per unit =1,322,400/348,000 | ||||||||||
| Budget selling price = 3.80 | 3.80 | |||||||||
| *Flexible Budget: | ||||||||||
| Revenue | =360000*5.2 | 1,872,000 | ||||||||
| variable manufacturing cost | =360000*3.8 | 1,368,000 | ||||||||
Answer 3)
The selling price variance, is the difference between the actual and budgeted selling price,is the flexible budget variance in revenue = $32,400 (U)
Answer 4)
The flexible budget variances shows that for the actual sales volume of 360,000 pounds, selling price were lower and costs per pound is higher.
The favorable sales volume variance in revenue (because more pounds of ice cream were sold than budgeted) helped offset the unfavorable variable cost variance. jorge effon should be more concerned because the static budget variance in contribution margin is $48,000(U) is actually made up of a favorable sales volume variance in contribution margin of 16,800 an unfavorable selling price variance of 32,400 and an unfavorable variable manufacturing cost variance 32,400.
Jorge Effon should analyse why each of these variance occurred and the relationship among them. Could the efficiency of variable manufacturing cost be improved.The sales volume appears to have increased due to the lower average selling price per pound
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