Question
Vroom-Vroom manufactures ride-on cars for toddlers and young children. They have a fiscal year of January through December. When they were preparing their budget, they
Vroom-Vroom manufactures ride-on cars for toddlers and young children. They have a fiscal year of January through December. When they were preparing their budget, they couldn't decide if a static or flexible budget would be best for their company - so they did both. It is now March, and their accounting department is catching up on analyzing variances for both January and February. Vroom-Vroom would like to use this opportunity to determine whether they would be better off with a static or flexible budget going forward. They want to choose which budget and related variance analysis provides them the best information for decision-making.
Here is the data that Vroom-Vroom used for their budgets:
Monthly budget data:
Selling price per unit-$79 per each
Raw materials cost-$32 per each
Packaging cost:$16 per each
Electricity-$5 per each
Waste and other cost-$7 per each
Salary and wages cost-$580,000 per month
Fringe benefits-50% of salaries
Rent cost-$950,000 per month
Insurance cost-$60,000 per month
Depreciation cost-$370,000 per month
Vroom-Vroom estimated sales/production will be between 100,000 and 300,000 cars per month. Their static budget is based on 200,000 cars sold per month. Assume that all units produced in a month are also sold in that month. Vroom-Vroom's unit of production/sale is a car (unit/each).
Here are the Actual Results in January and February:
Actual data:
Production (units)
JAN- 245,000
FEB- 187,000
Revenue
JAN- $19,345,000
FEB- $14,888,000
Raw materials
JAN- $7,545,000
FEB- $5,796,000
Packaging materials
JAN- $3,928,000
FEB- $2,997,000
Electricity
JAN- $1,175,000
FEB- $842,000
Waste and other costs
JAN- $1,837,000
FEB- $1,442,000
Wages
JAN- $575,000
FEB- $585,000
Fringe benefits
JAN- $287,000
FEB- $292,500
Rent
JAN- $950,000
FEB- $950,000
Insurance
JAN- $60,000
FEB- $65,000
Depreciation
JAN- $370,000
FEB- $340,000
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