Assume that in October 2019 the Schmidt Machinery Company (Exhibit 14.1) manufactured and sold 1,080 units for $760 each. During this month, the company incurred $594,000 total variable costs and $181,400 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 1,080 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) (2) (3) Actual Operating Income Master (Static) Budget Variances 1,000 220U $639.600 100% $800,000 100% $ 160,400U 350.950 55 450.000 99,050F $288.650 45% $350.000 44% $ 61,350U 25 150,000+ 19 10.650U $128,000 20% $200.000 25% $ 72,000U 780 Units Sales Variable costs Contribution margin Fixed costs Operating income 56 160.650*** *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