beach Color is preparing their 2019 budget. They estimate sales/production will be between 600,000 and 800,000 boxes of markers per month. Beach Color wants to look at both static budgets and flexible budgets to determine which is best for them. They have struggled in the past with determining whether budget variances were related to volume being above or below budget vs whether they are spending too much or too little on expenses. They want to be able to understand their budget variances in order to make better decisions. Note: Treat Salary and Wages Costs as Fixed Expenses.

Question 1: Prepare some budgets in Excel for Beach Color. (20 points)

a) Show the static budget based on 700,000 units (boxes) produced.

b) Show what the flexible budget would be if 600,000 units (boxes) were produced.

c) Show what the flexible budget would be if 800,000 units (boxes) were produced.

d) Show the flexible budget cost formula(s) for Beach Color. e) Explain the difference between static and flexible budgets and when each should be used.

Question 2: The month of January 2019 is complete, and Beach Color wants to compare their budget to their actual results. Actual results are shown in the table above. (30 points)

a) Compare Januarys actual results to the static budget you created in Question 1a. Analyze the static budget variances by comparing the static budget to the actual results.

b) Break out price and volume variance amounts for each line item.

c) For the static budget variances, indicate whether each line item is favorable or unfavorable. Provide possible explanations.

d) Create the flexible budget based on the actual units produced for January.

e) Compare the actual results to the flexible budget for January that you created in Question 2d. Analyze the flexible budget variances by comparing the flexible budget to the actual results.

f) For the flexible budget variances, indicate whether each line item is favorable or unfavorable. Provide possible explanations.

g) Beach Color wants to determine whether they should use a flexible budget or a static budget going forward. Write a memo to their CFO explaining some pros and cons of each option. Provide a recommendation including the reason(s) you recommend that approach.

Monthly Budget

Selling Price per unit-----5.00 per box

Raw material cost-----1.50 per box

Packaging Cost----.80 per box

salary and wage cost----300,000 per month

ot for product over 800,000 units---0.70 per box

fringe benefits-----50% off wage and OT

electricity---.20 per box

waste and other cost---.10 per box

rent cost---500,000 per month

insurance cost----60,000 per month

depreciation cost---240,000 per month

Question 2 chart

Production---825,000 per box

Sales---4,070,000

Ingredients cost---1,132,450

packaging cost---658,250

salary and wage cost---280,000

OT---48,750

Fringe benefits---164,375

electricity---158,780

waste and other cost--138,352

rent cost---500,000

insurance cost--65,000

depreciation cost---240,000