Calculating Flexible Budget Variances
Stellar Packaging Products is experiencing an increase in demand for the month of August as a result of Estrella Coffee’s comeback in its retail outlets. The following fact pattern forms the basis for the static budget:
Stellar Packaging Products
Variable Costs Total
Fixed Costs Total
 Raw materials
 $ 100,000
 Direct manufacturing labor
 $ 125,000
 Indirect manufacturing labor
 $ 105,000
 Factory Insurance & Utilities
 $ 63,000
 Depreciation – Pressroom
 $ 38,500
 Repairs and maintenance – factory
 $ 28,000
 Selling, marketing & distribution expenses
 $ 40,000
 $ 80,000
 General and administrative expenses
 $ 120,000
 Variable Cost and Volume Data
Plastic
 Raw materials = 0.10 lbs x $2.00/lb.
 $ 0.20
 Direct Labor = 0.025 hr x $10/hr.
 $ 0.25
 Volume in units
 500,000
Sales per unit are $3.00.
Required:
- In good form, prepare the static budget operating income in contribution format.
- Suppose actual sales demand increases to 700,000 units for August; assume the units are within the relevant range. Prepare the flexible budget for August in contribution format.
- Compute and reconcile the sales volume variance for August. Indicate whether the variance is favorable or unfavorable.
- In a one page composition, provide an explanation for the change in the sales volume variance for August, and identify the elements which give rise to the difference between the flexible and static budgets. Also explain the reason for completing a flexible budget for the period.
Your paper should meet the following requirements:
- 2-3 pages in total length
- Formatted according to the APA Requirements.
- Document your sources
Answers
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Posted 10 Jun 2017 04:06 PM
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