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cmartinez034 cmartinez034
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A week ago
Kevin Jarvis is the controller of Bitterroot Industries. Kevin prepared the following budgeted income statement at various levels of sales. After careful review of the budgeted income statements, and after discussions with the sales and production managers, the CEO determines that the best alternative is to base the budget on a sales volume of 30,000 units.

Budgeted Income Statements
Units20,00030,00040,000
Sales$1,240,000$1,860,000$2,480,000
Variable costs
  Direct material340,000510,000680,000
  Direct labor300,000450,000600,000
  Overhead   360,000   540,000   720,000
Total variable costs1,000,0001,500,0002,000,000
Contribution margin240,000360,000480,000
Fixed costs
  Overhead62,00062,00062,000
  Rent46,00046,00046,000
  Insurance28,00028,00028,000
  Advertising    15,000     15,000     15,000
Total fixed costs  151,000   151,000   151,000
Operating income$     89,000$   209,000$   329,000

Actual results for the year were 28,000 units, reflected in the following income statement:

Sales$1,764,000
Variable costs
  Direct material504,000
  Direct labor434,000
  Overhead   509,600
Total variable costs1,447,600
Contribution margin316,400
Fixed costs
  Overhead64,200
  Rent45,800
  Insurance29,100
  Advertising    14,000
Total fixed costs   153,100
Operating income$   163,300
What is the flexible budget variance for variable overhead?

▸ $34,000 unfavorable

▸ $5,600 unfavorable

▸ $30,400 favorable

▸ $5,600 favorable
Textbook 

Managerial Accounting


Edition: 4th
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ggianolaggianola
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A week ago
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$5,600 unfavorable

Per flexible budget: $540,000 ÷ 30,000 = $18
$18 × 28,000 = $504,000 - $509,600 = $5,600 unfavorable.
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