EXHIBIT 14.4 Breakdown of Total Operating Income Variance SCHMIDT MACHINERY COMPANY Analysis of Financial Results For October 2019 (1) (2) (3) Flexible-Budget Variances Flexible Budget (4) Sales Volume Variances (5) Master (Static) Budget Actual Units 780 0 780 1,000 Sales Variable costs Contribution margin Fixed costs Operating income $639,600 350,950 $288,650 160,650 $128,000 $15,600F 50F $15,650F 10,6500 $ 5,000F $624,000 351,000 $273,000 150,000 $123,000 2200 $176,0000 99,000F $ 77,0000 $800,000 450,000 $350,000 150,000 $200,000 $ 77,000U Analysis of Total Operating-Income Variance Total operating-income variance** =$128,000-$200,000=$72,000U Flexible-budget variance =$128,000 - $123,000 =$5,000F Sales volume variance =$123,000 - $200,000 =$77,000U *Budgeted fixed factory overhead cost = $120,000; budgeted fixed selling and administrative expense = $30,000. **Also called the total master (static) budget variance. Note: U denotes an unfavorable effect on operating income; F denotes a favorable effect on operating income. 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 1 Required 2 Required 3 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 A Sales Volume Variance Operating income Contribution margin 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 less A 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 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 less A 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
