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BEC - Business Environment & Concepts (Forum Locked Forum Locked)
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StartStrong
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Joined: 03 Apr 2009
Online Status: Offline
Posts: 37
Posted: 07 May 2009 at 01:23 | IP Logged  

Folsom Fashions sells a line of women's dresses.
Folsom's performance report for November 1991 follows.

                        Actual            Budget
Dresses sold:        5,000        6,000
Sales:                   $235,0 00        $300,000
Variable costs:        145,00 0       180,000
------------------------------------
Contribution margin: 90,000     120,000
Fixed costs:            84,000     80,000
------------------------------------
Operating income:    $6,000     ;  $40,000

The company uses a flexible budget to analyze its
performance and to measure the effect on operating
income of the various factors affecting the difference
between budgeted and actual operating income.
The variable cost flexible budget variance for November
is:

The answer is "A," $5,000 Favorable. This is based on
the calculation of Budgeted Variable Costs as
$150,000.


Is this correct?

By my calculations, $5,000 is the variable
Spending variance, not the Budget
variance. My understanding is that the Budget variance
is the difference between Actual OH incurred and
Budgeted OH based on *standard* hours. The calculation
shown in the answer seems to based on the Budgeted OH
based on *actual* hours worked (30k/dress * 5,000 actual
dresses sold = $150k).

Is this correct or am I mistaken? By my calculations the
correct answer for Budget variance would be $35,000
Favorable ($5,000 favorable Spending Variance + $30,000
Favorable Efficiency variance; or simply $145,000 Actual
OH - $180,000 Budgeted OH based on Standard Hours)

StartStrong

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iheartpeter
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Joined: 17 Mar 2009
Location: United States
Online Status: Offline
Posts: 274
Posted: 07 May 2009 at 14:55 | IP Logged  

They ask for the "variable cost flexible budget variance".  This is based on VC in the Actual amounts versus the VC in the Flexible Budget based on the VC/unit in the Budget amounts.

(180,000/6,000) = 30 vc/unit

30 v/c unit * 5,000 units actual = 150,000

150,000-145,000 = 5,000

Favorable because you spent less than you would have based on the Flexible Budget.



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DONE!!

Carrie...On The Cheap
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