Flexible budgets, variance analysis. You have been hired as a consultant by Harriet @

Fletcher, the president of a small manufacturing company that makes specialty automobile 1 Totalf lexible-budget parts. Fletcher is an excellent engineer, but she has been frustrated by working with inade- —— g)5 999 quate cost data.

You had previously helped install flexible budgeting and standard costs for Fletcher’s company. She has now asked you to consider the following data for May and recommend how variances might be computed and presented in performance reports:

Fletcher is disappointed in the May data. Although output units sold exceeded expectations, operating income did not. Assume that there was no beginning or ending inventory.
REQUIRED 1. You decide to present Fletcher with alternative ways to analyze variances so that she can decide what level of detail she prefers. The reporting system can then be designed accordingly.
Prepare an analysis similar to Levels 1 and 2 in Exhibit 7-8 (p. 33).

2. What are some likely causes for the variances you report in requirement I?

LO1

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Static budget in output units Actual output units produced and sold Budgeted selling price per output unit Budgeted variable costs per output unit Budgeted total fixed costs per month Actual revenue Actual variable costs Favourable variance in fixed costs 20,000 23,000 EA GA $ 48 $ 30 $ 240,000 $1,048,800 $ 756,000 59 6,000