Question

Xion Co. budgets a selling price of $81 per unit, variable costs of $34 per unit, and total fixed costs of $280,000. During June, the company produced and sold 11,800 units and incurred actual variable costs of $361,000 and actual fixed costs of $295,000. Actual sales for June were $985,000. Prepare a flexible budget report showing variances between budgeted and actual results. List variable and fixed expenses separately. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance)

Answer 1

Answer and Explanation:

The preparation of the flexible budget is presented below:

Particulars  Flexible budget       Actual   Variance Fav/Unfav

Sales revenue  $955,800                  $985,000   $29,200      Fav

                 (11,800 × $81)

Less:

variable cost $401,200                       $361,000   $40,200       unfav

                   (11,800 × $34)

Contribution margin $554,600      $624,000   $69,400 fav

Less:

Fixed cost      $280,000              $295,000    $15,000  unfav

Operating income $274,600            $329,000    $54,400

We simply applied the below formula

Operating income = Sales - variable cost - fixed cost