Flexible Budgets; Total Operating Income Variance; Breakdown of the Total Operating Income Variance; Spreadsheet Application The following information is available for Brownstone Products Company for the month of July:  Actual Master BudgetUnits 3,800 4,000Sales revenue $53,200 $60,000Variable manufacturing costs 19,000 16,000Fixed manufacturing costs 16,000 15,000Variable selling and administrative expenses 7,700 8,000Fixed selling and administrative expenses 10,000 9,000RequiredWhat was the total operating income variance for July, rounded to the nearest whole dollar? (Note: This variance is also called the master (static) budget variance for the period.) Was this variance favorable (F) or unfavorable (U)? Set up a spreadsheet to compute the July sales volume variance and the flexible-budget variance for the month, both in terms of contribution margin and in terms of operating income. Round all dollar amounts to the nearest whole number.Discuss implications of these variances on strategic cost management for Brownstone.Configure your spreadsheet so that it will allow the firm to prepare pro-forma budgets for activities within its relevant range of operations. Use your spreadsheet to prepare a flexible budget for each of the following two output levels (round all dollar amounts in the flexible budgets to the nearest whole number):3,750 units.4,150 units.(CMA Adapted)

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Asked Jul 19, 2019
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Flexible Budgets; Total Operating Income Variance; Breakdown of the Total Operating Income Variance; Spreadsheet Application The following information is available for Brownstone Products Company for the month of July:

 

Actual

Master Budget

Units

3,800

4,000

Sales revenue

$53,200

$60,000

Variable manufacturing costs

19,000

16,000

Fixed manufacturing costs

16,000

15,000

Variable selling and administrative expenses

7,700

8,000

Fixed selling and administrative expenses

10,000

9,000

Required

  1. What was the total operating income variance for July, rounded to the nearest whole dollar? (Note: This variance is also called the master (static) budget variance for the period.) Was this variance favorable (F) or unfavorable (U)? 

  2. Set up a spreadsheet to compute the July sales volume variance and the flexible-budget variance for the month, both in terms of contribution margin and in terms of operating income. Round all dollar amounts to the nearest whole number.

  3. Discuss implications of these variances on strategic cost management for Brownstone.

  4. Configure your spreadsheet so that it will allow the firm to prepare pro-forma budgets for activities within its relevant range of operations. Use your spreadsheet to prepare a flexible budget for each of the following two output levels (round all dollar amounts in the flexible budgets to the nearest whole number):

  5. 3,750 units.

  6. 4,150 units.

(CMA Adapted)

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Expert Answer

Step 1

1. Total operating income variance for July.

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Master Budget Actual S 3.800 $4.000 Units $53,200 S 60,000 Sales rev enue Less: Expenses Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative expenses Fixed selling and administrative expenses Total operating income $ 19,000 S 16,000 S 7,700 $ 10,000 S 500 $ 16,000 $ 15,000 $ 8,000 $ 9,000 s 12.000 Total operating income variance for July $500-$12,000 = $11,500 Actual total operating income is less than the master budget total operating income. Hence the variance is Unfavorable (U)

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Step 2

2.  Sales volume variance and flexible-variance budget for the month ...

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Flexible Budget Flexible Budget (C) = (E) x 3,800/4,000 Variance (D) (C-E)| Budget (E) Sales Volume Master Actual (A) Variance (B) (C-A) Units 3,800 0 3,800 200 U 4,000 $ 57,000 $ 60,000 $ 3,800 U $3,000 U $53,200 Sales Less: Variable costs: $ 19,000 $ 7,700 $ 26,700 $26,500 S 16,000 $ 8,000 $ 24,000 $ 36,000 Manufacturing cost Selling & admin. Cost $3,800 U $15,200 $ 7,600 S 22,800 $800 F $400 $100 U F $1,200 F $1,800 U Total variable costs $3.900 $7,700 U U Contribution margin $ 34,200 Fixed costs: $ 16,000 $ 10,000 $ 26,000 S 500 $1,000 $15,000 $15,000 Manufacturing cost Selling & admin. cost Total fixed costs Operating Income U S 9,000 $1,000 $9,000 S 24,000 $ 12,000 U $ 0 $1,800 U $2,000 U $24,000 $ 10,200 $9,700 U Flexible budget variance $7,700 Unfavorable $9,700 Unfavorable Contribution margin Operating income Sales volume variance $1,800 Unfavorable $1,800 Unfavorable| Contribution margin Operating income

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