How Do Managers Compute the Sales Volume Variance and Flexible Budget Variance 10 PDF

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How Do Managers Compute the Sales Volume Variance and Flexible Budget Variance 10...

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Summary Problem 2 1. Exhibit 10-17 indicates that Kool-Time installed 10 swimming pools during June. Now assume that Kool-Time installed 7 pools (instead of 10) and that the actual sales price averaged $12,500 per pool. Actual variable expenses were $57,400 and actual fixed expenses were $19,000.

Requirements 1. Prepare a revised income statement performance report using Exhibit 10-17 as a guide. 2. Show that the sum of the flexible budget variance and the sales volume variance for operating income equals the static budget variance for operating income. 3. What should be done with the information provided by the performance report?

Solution Requirements 1 and 2

10.11-6 Full Alternative Text

Requirement 3 The performance report helps managers determine the amount of the static budget variance that is due to sales volume and the amount of the variance that is due to other factors (the flexible budget variance). The manager will want to investigate the cause of any significant variances and determine whether they were due to controllable factors. For example, the largest variance was the unfavourable sales volume variance. This variance could be due to insufficient advertising (a controllable factor) or a general recession in the economy (an uncontrollable factor). The manager uses this feedback to adjust operations as necessary....