RP 6.1

The Cabazos Company is in the process of preparing a flexible budget to determine why actual net income is below budgeted. Complete the following flexible budget and volume variances. List one possible reason for each of the observed variances.

		(A)		(B)		(C)		(D)		(E)
		Master budget		Volume variances		Flexible budget		Flexible budget variances		Actual results
				(C - A)				(E - C)
Sales - units		20,000				18,500				18,500
Sales - revenue		$1,050,000				$971,250				$972,000
Variable costs		(500,000)				(462,500)				(477,000)
Contrib. margin		550,000				508,750				495,000
Fixed costs		(380,000)				(375,000)				(378,000)
Inc. from operations		170,000				133,750				117,000
Interest expense		(10,000)				(12,000)				(12,000)
Inc. before taxes		160,000				121,750				105,000
Income taxes		(32,000)				(24,350)				(23,100)
Net income		$128,000				$97,400				$81,900