Assume that in October 2019 the Schmidt Machinery Company (Exhibit 14.1) manufactured and sold 960 units for $846 each. During this month, the company incurred $499,200 total variable costs and $181,100 total fixed costs. The master (static) budget data for the month are as given in Exhibit 14.1.

 

Required:

1. Make one flexible budget for the production and sale of 960 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 IncomeSCHMIDT MACHINERY COMPANYAnalysis of Operating Income*For October 2019( 1 )( 2 )( 3 )Actual Operating Income Master ( Static ) Budget VariancesUnits7801. 0002201]*Sales$639. 600100 %$800. 000100 %0$ 160. 40OUTVariable costs350. 95055450. 0005699. 05OF*Contribution margin$288. 65045%$350. 000449061. 350 0Fixed costs160.650*25150. 000*1910. 650 0Operating income$ 128. 00020%$200.00025%072, 000 0*IT denotes an unfavorable effect on operating income** * F denotes & 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 = $120.01010: budgeted fixed selling and administrative costs = $30. 01010