Flexible Budget and Variance analysis.

Pretend the following income statement was your budgeted income statement in part i of the above problem (PLEASE NOTE IT IS NOT!) Use the ratios from your contribution income statement to create a CMIS for the budgeted income statement above at 70,000 units (ratios from part 1, information from part 2). JTI Budgeted Income Statement For April Net Sales (70,000 units) 4,550,000 Cost of Goods Sold 2,105,600 Gross Profit 2,444,400 Selling Expenses 532,625 Administrative Expenses 17,000 Operating Income 1,894,775 The actual April results are as follows: JTI Actual Income Statement For April Net Sales (72,000 units) 4,250,000 Cost of Goods Sold 2,405,000 Gross Profit 1,854,000 Selling Expenses 600,200 Administrative Expenses 18,000 Operating Income 1,235,000.

a. Create a CMIS for the initial April budget at the 70,000 unit level, using the ratios developed in part 1, and budgeted income numbers from part 2.

b. Prepare a flexible budget at 72,000 units for JTI using the CMIS you created in the previous step. Compare the flexible budget to the actual results.

c. Identify the dollar amount of the variances, and indicate if they are favorable or unfavorable. For each variance identified, give more than one reason the variance might exist. Identify where you might go to investigate each variance.