Assume that in October 2022 the Schmidt Machinery Company (Exhibit 14.1) manufactured and sold 1,070 units for $847 each. During this month, the company incurred $460,100 total variable costs and $181,200 total fixed costs. The master budget data for the month are as given in Exhibit 14.1.

Required:

1. Prepare a flexible budget for the production and sale of 1,070 units.

2. Compute for October 2022:

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

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

3. Compute for October 2022:

a. The total flexible budget variance. Indicate whether this variance was favorable or unfavorable.

b. The total variable cost flexible budget variance. Indicate whether this variance was favorable or unfavorable.

c. The total fixed cost flexible budget variance. Indicate whether this variance was favorable or unfavorable.

d. The selling price variance. Indicate whether this variance was favorable or unfavorable.

Comparison of Actual and Budgeted Operating Income

SCHMIDT MACHINERY COMPANY
Analysis of Operating Income
For October 2022
	(1) Actual Operating Income	(2) Master Budget	(3) Variances
Units	780		1,000		220	U*
Sales	$ 639,600	100%	$ 800,000	100%	$ 160,400	U
Variable costs	350,950	55	450,000	56	99,050	F**
Contribution margin	$ 288,650	45%	$ 350,000	44%	$ 61,350	U
Fixed costs	160,650***	25	150,000	19	10,650	U
Operating income	$ 128,000	20%	$ 200,000	25%	$ 72,000	U

*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.