FLEXIBLE BUDGETING CASE ACTIVITY VERSUS SPENDING VARIANCES Due to global warming, demand for milk shares was much larger than expected. The amount of large milk shakes actually sold in January were 5,000 (10,000 over budget) while the amount of small milk shakes actually sold in January were 45,000 (5,000 under budget). The budgets prepared above were planned prior to the beginning of the year and are valid for the planned level of sales activity. If the actual level of sales activity differs from the planned level, comparing our budgets above with actual results may lead to incorrect conclusions about performance. Therefore we must prepare a FLEXBLE budget that adjusts revenues and expenses given the actual level of sales activity that occurred. Please (1) Fill in the Flexible budget based on actual sales for both size milk shakes. This is calculated by using the ACTUAL sales volume times the standard amount) (2) Fill in the activity variance (difference between planned budget and flexible budget) and the spending variance (difference between flexible budget and actual budget) amounts as well as indicate whether they are favorable or unfavorable for both size milk shakes. Large Milk Shakes - Flexible Budget Performance Report for the Month ended January 31 Planned Budget based on budgeted sales of 75,000 milk shakes Flexible budget based on actual sales of 85,000 milk shakes Spending Variances Actual results based on actual sales of 85,000 milk shakes Revenue (5%.00q) Less: Cost of goods sold ($2.81q) Gross Profit $675,000 765.000 $210,750 $220.000 $464,250 545.000 Less: Operating EEpenses Operating Income 8. 764 gt 10.317 $455,486 $534.683 Income tax expense (fax $159,420 $187.135 rate = 35%) Net Income 296,066 | 347 544 Small Milk Shakes - Flexible Budget Performance Report for the Month ended January 31 Planned Budget | Activity Flexible budget | Spending Actual resulis based on Variances based on actual | Variances based on actual budgeted sales sales of 45,000 sales of 45,000 of 50,000 mlk milk shakes milk shakes shakes Revenue (56.30q) $315,000 $283.500 Less: Cost of goods sold $109.,000 100.500 ($2.18q) Gross Profit $206,000 $183.000 Less: Operating 5,928 gxpenses Operating Income 5177072 Tncome tax expense (tax $61.975 rate = 35%) Net Income $130,102 115,097