Contribution Margin Format Example:

Volume		XX
Sales		XX
Variable Costs (Listed)	XX
Variable Costs (Total)		XX
Contribution Margin		XX
Fixed Costs (Listed)	XX
Fixed Costed (Total)		XX
Operating Income		XX

Vroom-Vroom manufactures ride-on cars for toddlers and young children. They have a fiscal year of January through December. When they were preparing their budget, they couldnt decide if a static or flexible budget would be best for their company so they did both. It is now March, and their accounting department is catching up on analyzing variances for both January and February. Vroom-Vroom would like to use this opportunity to determine whether they would be better off with a static or flexible budget going forward. They want to choose which budget and related variance analysis provides them the best information for decision-making.

Monthly Budget Data:

Price per unit	$79	per each
Raw material costs	$27	per each
Packaging costs	$15	per each
Electricity	$4	per each
Waste and other costs	$6	per each
Salary and wage costs	$560,000	per month
Fringe Benefits	50%	of salaries
Rent costs	$750,000	per month
Insurance costs	$50,000	per month
Depreciation costs	$370,000	per month

Vroom-Vroom estimated sales/production will be between 100,000 and 300,000 cars per month. Their static budget is based on 200,000 cars sold per month. Assume that all units produced in a month are also sold in that month. Vroom-Vrooms unit of production/sale is a car (unit/each).

Actual results in Jan. and Feb.:

Actual Data	January	February
Production (Units)	245,000	187,000
Revenue (Sales)	$19,345,000	$14,888,000
Raw Materials	$6,545,000	$4,996,000
Packaging Materials	$3,688,000	$2,897,000
Electricity	$975,000	$742,000
Waste and other costs	$1,537,000	$1,242,000
Wages	$560,000	$575,000
Fringe Benefits	$280,000	$287,500
Rent	$750,000	$750,000
Insurance	$52,000	$52,000
Depreciation	$370,000	$340,000

Prepare a flexible budget in Excel for Vroom-Vroom.

1. Show the flexible budget for January in the Contribution Margin Income Statement format.
2. Compare Januarys flexible budget to Januarys actual results. Specify which line items are favorable or unfavorable and how much.
3. For Raw Material Costs and Packaging Costs, break out the Price and Volume Variances for January. Provide potential explanations. Note: Saying that an item was above or below budget is NOT an explanation. You need to include potential (made-up) reasons.
4. Show the flexible budget for February in the Contribution Margin Income Statement format.
5. Compare Februarys flexible budget to Februarys actual results. Specify which line items are favorable or unfavorable and how much.
6. For Raw Material Costs and Packaging Costs, break out the Price and Volume Variances for February. Provide potential explanations for each one. Note: Saying that an item was above or below budget is NOT an explanation. You need to include potential (made-up) reasons.