Problem Set- Flexible Budgeting

Flexible Budgeting/Budgeting for Planning and Control

Discussion

Davidson, Inc., prepared a budget last period that called for sales of 18,000 units at $12 each. The manufacturing costs were estimated to be $5 variable per unit and $54,000 fixed. Selling and administrative costs were anticipated to be $2 variable per unit and $5,000 fixed. During the period, actual production and actual sales were 18,400 units. The selling price was $12.15 per unit. Variable manufacturing costs were $5.90 per unit. Actual fixed manufacturing costs were $54,000. Actual variable selling and administrative costs were $2 per unit and actual fixed m&a costs were $4,500.

Flexible budget

Sales Revenue$220,800 ($12 x 18,400)

Variable mfg. costs (92,000) ($5 x 18,400)

Variable m&a costs (36,800) ($2 x 18,400)

Contribution margin$ 92,000

Fixed mfg. Costs (54,000)

Fixed m&a costs (5,000)

Operating profit$ 33,000

Master

Flexible Budget Sales (based on

(based on actual Activity budgeted

of 18,400 units)Variance 18,000 units)

Sales Revenue$220,800 $ 4,800 F$216,000 ($12 x 18,000)

Variable mfg. Costs (92,000) 2,000 U$ (90,000) ($ 5 x 18,000)

Variable m&a costs (36,800) 800 U$ (36,000) ($ 2 x 18,000)

Contribution margin$ 92,000$ 2,000 F$ 90,000

Fixed mfg. Costs (54,000) 0 (54,000)

Fixed m&a costs (5,000) 0 ( 5,000)

Operating profit$ 33,000 $ 2,000 F$ 31,000

Master

ResultsCostPrice(based on actualActivity budgeted

(18,400 units)VariancesVariances 18,400 units)Variance 18K units)

Sales Revenue$223,560 (a)$2,760F$220,800 $ 4,800 F$216,000

Variable mfg. Costs (108,560) (b)$16,560U (92,000) 2,000 U$ (90,000)

Variable m&a costs (36,800) (c) (36,800) 800 U$ (36,000)

Contribution margin$ 78,200$16,560U$2,760F$ 92,000 $ 2,000 F$ 90,000

Fixed mfg. Costs (54,000) (54,000) 0 (54,000)

Fixed m&a costs (4,500) 500F (5,000) 0 ( 5,000)

Operating profit$ 19,700$16,060U$2,760F$ 33,000 $ 2,000 F$ 31,000

(a)18,400 x $12.15 = $223,560

(b)18,400 x $ 5.90= $108,560