Assume that in October 2019 the Schmidt Machinery Company (Exhibit 14.1) manufactured and sold 940 units for $730 each. During this month, the company incurred $441,800 total variable costs and $180,900 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 940 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 SCHMIDT MACHINERY COMPANY Analysis of Operating Income For October 2019 (1) Actual Operating Income Units 780 Sales $639,600 100% Variable costs 350.950 55 Contribution margin $288,650 45% Fixed costs 160.650*** 25 Operating income $128,000 20% (2) (3) Master (Static) Budget Variances 1.000 2200 $800,000 100% $ 160,400U 450,000 56 99,050F** $350.000 44% $ 61,350U 150.0001 19 10.650U $200,000 25% $ 72,000U *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