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The Blowing Balloon Company produces party balloons that are sold in multi-pack cases. To follow is the company's performance report in contribution margin format for

The Blowing Balloon Company produces party balloons that are sold in multi-pack cases. To follow is the company's performance report in contribution margin format for January:

Requirements

1.

What is the budgeted sales price per unit?

2.

What is the budgeted variable expense per unit?

3.

What is the budgeted fixed cost for the period?

4.

Compute the master budget variances. Be sure to indicate each variance as favorable (F) or unfavorable (U.)

5.

Management would like to determine the portion of the master budget variance that is (a) due to volume being different than originally anticipated and (b) due to some other unexpected cause. Prepare a flexible budget performance report to address these questions, using the actual sales volume of

56,000

units and the budgeted sales volume of

53,000

units. Use the original budget assumptions for sales price, variable cost per unit, and fixed costs, assuming the relevant range stretches from

48,000

to

71,000

units.

6.

Using the flexible budget performance report you prepared for Requirement 5, answer the following questions:

a.

How much of the master budget variance (calculated in Requirement 4) for operating income is due to volume being higher than expected?

b.

How much of the master budget variance for variable expenses is due to some cause other than volume?

c.

What could account for the flexible budget variance for sales revenue?

d.

What is the volume variance for fixed expenses? Why is it this amount?

Data table

A

B

C

D

1

The Blowing Balloon Company

2

Actual vs. Budget Performance Report

3

For the Month Ended January 31

4

Actual

Master Budget

Master Budget Variance

5

Sales volume (number of cases sold)

56,000

53,000

6

Sales revenue

$172,400

$148,400

7

Less: Variable expenses

79,400

68,900

8

Contribution margin

$93,000

$79,500

9

Less: Fixed expenses

68,500

67,000

10

Operating income

$24,500

$12,500

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