3 Problem 1143 (#1 and 2 only) Flexible Budgeting: Variances; Impact on Behavior 4 DATA INPUT Lawnmate Company Operating Results For the Month of May 6 8 9 10 Units sold Actual Master Budget 5,000 Variance 4,800 200 U $ 1,200,000 760,000 S 440,000 180,000 120,000 S 140,000 $ 1,152,000 780,000 S 372,000 180,000 115,000 S 77,000 $ 48,000 U 20,000) U $ 68,000 U 12 Revenue 13 Variable cost 14 Contribution margin 15 Fixed overhead 16 Fixed general and adminstrative cost 17 Operating income 18 19 Unit costs: 20 Direct material 21 Direct labor 22 Variable production overhead 23 Variable selling expenses 24 25 Total variable costs: 26 Direct material 27 Direct labor 28 Variable production overhead 29 Variable selling expenes 5,000 F $ 63,000 U 60 36 12 $ 780,000 S 320,000 S 192,000 $ 176,000 S 92,000 31 SOLUTION 32 33 1) Flexible budget for the month of May, based on 4,800 units, showing separate variable cost budget is as follows: 34 35 36 37 38 39 Revenue 40 41 Deduct: Variable costs: 42 43 Lawnmate Company Flexibile Budget For the Month of May Direct material Direct labor Variable production overhead Variable selling expenses 45 46 47 48 Contribution margin 49 50 Deduct: Fixed costs 51 52 53 54 Operating income Total variable costs Fixed production overhead Fixed general and administrative cost 56 2) Flexible-budget variances are as follows: 57 58 Lawnmate Company Flexible-Budaet Variances 59 Lawnmate Company Flexible-Budget Variances For the Month of May Flexible Budget Flexible-Budget Variance Actual Units Revenue Variable costs U or F Direct material Direct labor Variable production overhead Variable selling expenses Total variable costs Contribution margin Fixed costs: U or F Fixed production overhead Fixed general and administrative cost Total fixed costs Operating income