10#2

The

Blowing

Balloon Company produces party balloons that are sold in multi-pack cases. To follow is the company's performance report in contribution margin format for

January:

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(Click the icon to view the performance report in contribution margin format.)Read the requirements

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.

Requirement 1. What is the budgeted sales price per unit?

The budgeted sales price per unit is

.

Requirement 2. What is the budgeted variable expense per unit?

The budgeted variable expense per unit is

.

Requirement 3. What is the budgeted fixed cost for the period?

The budgeted fixed cost for the period is

.

Requirements 4 and 5. Compute the master budget variances. Be sure to indicate each variance as favorable (F) or unfavorable (U.) Management would like to determine the portion of the master budget variance that is (a) due to volume being different than originally anticipated, and (b) due to some other unexpected cause. Prepare a flexible budget performance report to address these questions, using the actual sales volume of

60,500

units and the budgeted sales volume of

55,000

units. Use the original budget assumptions for sales price, variable cost per unit, and fixed costs, assuming the relevant range stretches from

50,000

to

70,500

units.

Begin by completing the actual and master budget columns of the performance report and then the master budget variances. Then compute the flexible budget column and the remaining variance columns. (Round all amounts to the nearest whole dollar. Label each variance as favorable (F) or unfavorable (U). If the variance is 0, make sure to enter in a "0". A variance of zero is considered favorable.)

The Blowing Balloon Company
Flexible Budget Performance Report
For the Month Ended January 31
		Flexible						Master
		Budget		Flexible	Volume		Master	Budget
	Actual	Variance		Budget	Variance		Budget	Variance
Sales volume
Sales revenue
Less: Variable expenses
Contribution margin
Less: Fixed expenses
Operating income

Requirement 6a. Using the flexible budget performance report you prepared for Requirement 5, answer the following question: How much of the master budget variance (calculated in Requirement 4) for operating income is due to volume being higher than expected?

The amount of the master budget variance for operating income due to volume being higher than expected is

.

Requirement 6b. Using the flexible budget performance report you prepared for Requirement 5, answer the following question: How much of the master budget variance for variable expenses is due to some cause other than volume?

The amount of the master budget variance for variable expenses due to some cause other than volume is

.

Requirement 6c. Using the flexible budget performance report you prepared for Requirement 5, answer the following question: What could account for the flexible budget variance for sales revenue?

Selling less units than budgeted

Selling more units than budgeted

Selling units at a higher price than budgeted

Selling units at a lower price than budgeted

could account for the flexible budget variance for sales revenue.

Requirement 6d. Using the flexible budget performance report you prepared for Requirement 5, answer the following question: What is the volume variance for fixed expenses? Why is it this amount? (Enter a "0" for any zero amounts.)

The volume variance for fixed expenses is			because the flexible budget uses the		amount for fixed
expenses because fixed expenses are

Data table

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	A	B	C	D
1	The Blowing Balloon Company
2	Actual vs. Budget Performance Report
3	For the Month Ended January 31
4		Actual	Master Budget	Master Budget Variance
5	Sales volume (number of cases sold)	60,500	55,000
6	Sales revenue	$178,000	$154,000
7	Less: Variable expenses	91,500	82,500
8	Contribution margin	$86,500	$71,500
9	Less: Fixed expenses	70,500	69,000
10	Operating income	$16,000	$2,500