As part of its comprehensive planning and control system, Menendez Company uses a master budget and subsequent variance analysis. You are given the following information that pertains to the company’s only product, XL-10, for the month of December.

Required

1. Using text Exhibit 14.4 as a guide, complete the missing parts of the following profit report for December.

		Flexible			Sales		Master
	Actual	Budget		Flexible	Volume		(Static)
	Results	Variance		Budget	Variance		Budget
Unit sales	50,000						40,000
Sales	$450,000						$400,000
Variable costs	$375,000						$280,000
Contribution margin	$75,000						$120,000
Fixed costs	$65,000						$75,000
Operating income	$10,000						$45,000

2. Based on your completed profit report, determine the dollar amount and label (F or U) each of the following variances for December:
a. Total master (static) budget variance.
b. Total flexible-budget variance.
c. Sales volume variance, in terms of operating income.
d. Sales volume variance, in terms of Contribution margin.
e. Selling price variance.
3. Explain what is meant by the labels “favorable” and “unfavorable” in terms of a profit-variance report of the type you just prepared for the Menendez Company.
4. What information is contained in the total flexible-budget variance for the period? Include in your answer a short discussion of the component variances that can be calculated to explain the causes of the total flexible-budget variance.
5. Some individuals have recently criticized the use of standard costs and flexible budgets to perform the kinds of variance analyses covered in this chapter. Provide an overview of the arguments for and against the use of standard costs and flexible budgets for operational controlpurposes.

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Criticisms of Standard Costing 1. Varinces are too aggregate and too late to be useful. The notion of aggregation means that the organization may achieve local optimizations (various subunits of the organization) at the expense of global optimization of results. This criticism can also be framed as a problem in "goal congruence." The timeliness issue relates to the quality of information produced by the organization's comprehensive management accounting and control system. One desirable quality is that such information be timely. (Another qualitative characteristic might be "accuracy.") The point is that to be useful/relevant to decision makers, accounting information should be as timely as possible. Traditional standard cost systems provide information at the end of a reporting period (e.g., each month). Contrast this with the real-time measurements one can obtain today regarding the consumption of labor and material resources. Bar-code and related technologies enable organizations to monitor resource consumption on a real-time basis