FIXED & FLEXIBLE BUDGETS; VARIANCE ANALYSIS

After accurate completion of the Cash Budget for the month of May, your supervisor wants to see how much you remember about Flexible Budgets and Variance Analysis from your introductory accounting principles course. Management of Front Range Furniture wants to begin using flexible budgets in the hopes of better planning for future operations. Your next task assigned is to create a flexible budget from the information below with a basic variance analysis. This will require review and approval before sending on to the company controller.

Frank's Furniture provides the following Fixed Budget data for the year:

Sales (20,000 units; $31.50 per unit)		$630,000
Cost of sale:
Direct materials	$210,000
Direct labor	168,000
Variable overhead	63,000
Fixed overhead	80,000	500,000
Gross Profit		$130,000
Operating expense:
Fixed	$12,000
Variable	40,000	62,000
Income from operations

The companys actual activity for the year follows:
Sales (21,000 units)		$651,000
Cost of goods sold:
Direct materials	$231,000
Direct labor	168,000
Variable overhead	73,500
Fixed overhead	77,500	550,000
Gross Profit		$101,000
Operating expense:
Fixed	$12,000
Variable	39,500	51,500
Income from operations		$49,500

Required:

2. Prepare a flexible budget performance report for the year using the contribution margin format on the appropriate tab of your working papers. You will be flexing the budget to a sales level of 21,000. Be sure to complete all columns provided. Be sure to answer the questions below the chart in your working papers.

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Frank's Furniture Flexible Budget Performance Report	Flexible Budget per Unit	Budget	Actual	Variance	Favorable (F) vs. Unfavorable (U)
Sales in Units	20,000	21,000	21,000	0	Neutral
Sales in Dollars	$ 31.50				F
Variable costs:
Direct materials
Direct labor
Variable overhead
Variable operating expenses
Total Variable Costs
Contribution Margin
Fixed costs:
Overhead
Operating expenses					Neutral
Total fixed costs
Income from Operations

Selected Variance Analysis		Amount	Favorable vs. Unfavorable
Variable Cost Variance
Fixed Cost Variance
Total Cost Variance
Sales Revenue Variance
Average Sales price per unit Variance