Background RTI Company's master budget calls for production and sales of 18,000 units for $81,000; variable costs of $30,600; and fixed costs of $20,000. The company incurred $32,000 of variable costs to produce and sell 20,000 units for $85,000, and earned $25,000 operating income. Problem Information

Master budget sales volume (units) 18,000

Budgeted total sales revenue $81,000

Budgeted total variable costs $30,600

Budgeted fixed costs $20,000

Actual variable costs incurred $32,000

Actual production/sales volume (units) 20,000

Actual total sales revenue $85,000

Actual operating income $25,000

Requirements

1. Determine RTI Company's

a. Flexible budget operating income.

b. Contribution margin flexible-budget variance.

c. Operating income flexible-budget variance.

d. Sales volume variance, in terms of contribution margin.

e. Sales volume variance, in terms of operating income.

2. Explain why the contribution margin sales volume variance and the operating income sales volume variance for the same period are likely to be identical. 3. Explain why the contribution margin flexible-budget variance is likely to differ from the operating income flexible-budget variance for the same period.

Solution

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