Comparison of Actual and Budgeted Operating Income EXHIBIT 14.1 SCHMIDT MACHINERY COMPANY Analysis of Operating Income For October 2019 (1) (2) (3) Variances Actual Operating Income Master (Static) Budget 220U Units 780 1,000 $ 160,400U 100% $639,600 100% Sales $800,000 Variable costs 99.050F 350,950 55 450.000 56 $350,000 Contribution margin $288,650 45% 44% $ 61,350U 150.000 *** 160.650 Fixed costs 25 19 10.650U $128,000 20% $ Operating income $200,000 25% 72,000U *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 Assume that in October 2019 the Schmidt Machinery Company (Exhibit 14.1) manufactured and sold 920 units for $720 each. During this month, the company incurred $515,200 total variable costs and $180,700 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 920 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) Required 1 Required 2 Required 3 Prepare a flexible budget for the production and sale of 920 units. Units sold Sales Required 2 Required 3 Required 1 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) Show less Sales Volume Variance Operating income Contribution margin Required 1 > Required 3 Required 1 Required 2 Required 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) Show lessA a. The total flexible-budget (FB) variance b. The total variable cost flexible-budget variance c. The total fixed cost flexible-budget (FB) variance d. The selling price variance Required 2 Required 3
