Requirement 1. Calculate the sales-volume variance and flexible-budget variance for operating income. Begin with the actual results, then complete the flexible budget columns and the static budget columns. Label each variance as favorable (F) or unfavorable (U). (For variances with a $0 balance, make sure to enter "0" in the appropriate field. If the variance is zero, do not select a label.) Actual Results Output units 5,700 Revenues $ 3,990,000 Direct materials $ 783,000 Direct manufacturing labor 590,400 Fixed costs 1,190,000 Total costs $ 2,563,400 Operating income $ 1,426,600 Flexible-Budget Flexible Variance Budget 0 5,700 $ 114,000 F $ 3,876,000 $ 7,800 U $ 775,200 8,100 F 598,500 410,000 F 1,600,000 $ 410,300 F $ 2,973,700 $ 524,300 F $ 902,300 Sales-Volume Static Variance Budget

Flexible budget variance is the difference of the actual results and the flexible budget results.

Actual Sales volume is usually lower than expected . So static budget is prepared to find the differences at lower levels of sales so that the sales prices could be adjusted using variances.

Explanation:

Actual Results                 Flexible-Budget       Flexible Variance

                                                                                    Budget

Output units 5,700                 5,700                              0

Revenues $ 3,990,000       $ 3,876,000             114,000 F

Direct materials $ 783,000   $ 775,200               7,800 U

Direct Mfg labor 590,400     598,500                 8,100 F

Fixed costs 1,190,000          1,600,000               410,000 F

Total costs $ 2,563,400        $ 2,973,700           410,300 F

Operating

Income        $ 1,426,600        $ 902,300            524,300 F

First we compare the actual and the flexible budget as given in the question and write down the variances . Then we compare the flexible budget for which level of output production is 5700 and static budget for which we have taken the output level of production 5500 units . The fixed costs remain constant and variances can be calculated for each change in variable for the 5500 output units of production.                                  

                Flexible-Budget            Sales-Volume          Static Budget

                                                            Variance                      

Output units                 5,700                                          5500

Revenues           $ 3,876,000             136,000 Fav     3740,000

Direct materials    $ 775,200              27,200 Un          748,000

Direct Mfg labor      598,500               21000 Un           577,500

Fixed costs          1,600,000                                   1,600,000      

Total costs         $ 2,973,700                48,200 Un         2925,500

Operating

Income               $ 902,300                   87,800 Fav     $ 814,500

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