14-4

Assume that in October 2019 the Schmidt Machinery Company (Exhibit 14.1) manufactured and sold 1,110 units for $855 each. During this month, the company incurred $455,100 total variable costs and $182,000 total fixed costs. The master (static) budget data for the month are as given in Exhibit 14.1.

Required:

1. Prepare a flexible budget for the production and sale of 1,110 units.

2. Compute for October 2019:

a. The sales volume variance, in terms of operating income. Indicate whether this variance was favorable (F) or unfavorable (U).

b. The sales volume variance, in terms of contribution margin. Indicate whether this variance was favorable (F) or unfavorable (U).

3. Compute for October 2019:

a. The total flexible-budget (FB) variance. Indicate whether this variance was favorable (F) or unfavorable (U).

b. The total variable cost flexible-budget variance. Indicate whether this variance was favorable (F) or unfavorable (U).

c. The total fixed cost flexible-budget (FB) variance. Indicate whether this variance was favorable (F) or unfavorable (U).

d. The selling price variance. Indicate whether this variance was favorable (F) or unfavorable (U).

EXHIBIT 14.1 Comparison of Actual and Budgeted Operating Income (2) Units Sales SCHMIDT MACHINERY COMPANY Analysis of Operating Income For October 2019 (1) (3) Actual Operating Income Master (Static) Budget Variances 780 1.000 2200 $639,600 100% $800,000 100% $ 160,400U |_ 350.950 450.000 56 99,050F $288.650 45% $350,000 44% $ 61,350U | 160.650*** 25 150.000 19 10,650U $128.000 20% $200.000 25% $ 72,000U 55 Variable costs Contribution margin Fixed costs Operating income *U denotes an unfavorable effect on operating income. **F denotes a favorable effect on operating income. ***Actual fixed factory overhead cost = $130,650; actual fixed selling and administrative costs = $30,000. Budgeted fixed factory overhead cost = $120,000; budgeted fixed selling and administrative costs = $30,000