13-2 Sales Volume and Flexible Budget Variances

(USE WORKSHEETS BELOW)

The following data apply to chairs made by the Western Chair Company.

Price and Variable Costs Per Unit:	Standard	Actual
Sales Price	$62.00	$60.00
Direct Materials Cost	16.00	16.34
Direct Labor Cost	12.00	10.92
Overhead Cost	14.00	14.20
General, Selling, and Administrative (G,S,&A) Cost	8.00	7.00
Expected Fixed Costs:
Manufacturing	$120,400	$114,000
General, Selling, and Administrative	67,000	69,000

Western planned to make and sell 43,000 chairs. It actually produced and sold 44,000 chairs.

a. Prepare a pro forma income statement based on the static budget.

b. Prepare a pro forma income statement based on a flexible budget and compute the sales and variable cost volume variances. Indicate whether the variances are favorable or unfavorable and speculate as to what management position would be held responsible for each variance.

c. Prepare an income statement that shows the actual results, and compute the flexible budget variances. Indicate whether the variances are favorable or unfavorable and predict what management position would be held responsible for each variance.

Western Chair Company Static Budget, Flexible Budget, Volume Variances
	Static Budget	Flexible Budget	Volume Variances	F or UF
Number of Units
Sales Revenue
Variable Costs
Direct Material
Direct Labor
Overhead
G,S,&A
Contribution Margin
Fixed Costs
Manufacturing
G,S,&A
Net Income

Western Chair Company Flexible Budget, Actual Results, Flexible Budget Variances
	Flexible Budget	Actual Results	Flex. Bud. Variances	F or UF
Number of Units
Sales Revenue
Variable Costs
Direct Material
Direct Labor
Overhead
G,S,&A
Contribution Margin
Fixed Costs
Manufacturing
G,S,&A
Net Income