Assume that in October 2022 the Schmidt Machinery Company (Exhibit 14.1) manufactured and sold 950 units for $854 each. During this month, the company incurred $380,000 total variable costs and $181,900 total fixed costs. The master budget data for the month are as given in Exhibit 14.1.

Exhibit 14.1:

Required:

1. Prepare a flexible budget for the production and sale of 950 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.

Required 1: Prepare a flexible budget for the production and sale of 950 units.

Required 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.

Required 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 780 (2) Master Budget 1,000 (3) Variances * Units 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% S 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% S 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. Units sold Sales s $ 0 Fixed costs Variable costs $ 0 Units sold Sales $ 0 $ 0 Contribution margin