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Master budget and flexible budget

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The marketing, finance and accounting students estimate sales of 15,000 units for the upcoming period at Chance Company.

The budget was based on the assumptions that follow:

Per Unit
Sales $60
Variable Costs:
Manufacturing costs 30
Selling and administrative costs 10
Fixed Costs:
Manufacturing costs 75,000
Selling and administrative costs 125,000

During the period the company actually produced and sold 15,100 units @$62. Actual variable costs and fixed costs:

Variable costs:
Manufacturing costs 35
Selling and administrative costs 9
Fixed costs:
Manufacturing costs 80,000
Selling and administrative costs 123,000

Required:

1. Prepare a master budget.
2. The manager now wants to evaluate the company's performance by comparing actual costs and revenues using the master budget but the students have advised against it.
3. Prepare a flexible budget.
4. if management compares actual revenues and costs to the appropriate flexible budget, will they be able to fully understand what went right and what went wrong with the operation during the period? why or why not?

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Solution Preview

Please see attachment.

The marketing, finance and accounting students estimate sales of 15,000 units for the upcoming period at Chance Company.

The budget was based on the assumptions that follow:

Per Unit
Sales $60
Variable Costs:
Manufacturing costs 30
Selling and administrative costs 10
Fixed Costs:
Manufacturing costs 75,000
Selling and administrative costs 125,000

During the period the company actually produced and sold 15,100 units@$62. Actual variable costs and fixed costs:

Variable costs:
Manufacturing costs 35
Selling and administrative costs 9 ...

Solution Summary

The master budget and flexible budgets are provided. The assumptions for marketing, finance and accounting students.

$2.19
See Also This Related BrainMass Solution

Managerial Accounting: Flexible Budget

See Attached Spreadsheet.

A condensed income statement for XYZ Company is as follows for the month of November:

Master
Budget Actual Variance

Units Produced and Sold 20,000 19,000 (1,000)
Sales revenue $400,000 $361,000 $(39,000)
Costs:
Direct materials 60,000 42,000 $18,000
Direct labor 60,000 76,000 $(16,000)
Manufacturing overhead 130,000 130,000 $-
Selling and administration 100,000 99,000 $1,000
Total Costs 350,000 347,000 $3,000
Operating income $50,000 $14,000 $(36,000)

Further analysis revealed the following data on costs:

Variable rate
per Unit Fixed

Direct materials $3
Direct labor 3
Manufacturing overhead 4 $50,000
Selling and adminstration 2 60,000
Totals $12 $110,000

Required:

(1) Prepare a report comparing the master budget with a flexible budget for November.

(2) Calculate the following variances:
a. Sales volume
b. Flexible Budget Direct materials (net)
c. Flexible Budget Direct labor (net)
d. Flexible Budget Manufacturing overhead (net)
e. Flexible Budget Selling and administration (net)
f. Flexible budget variance

(3) Comment on the significance of the variances you calculated.

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