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Flexible-budget preparation and analysis

Bank Management Printers, Inc. produces luxury check books with three checks and stubs per page. Each check book is designed for an individual customer and is ordered through the customer's bank.

The company's operating budget for September 2007 included these data:

Number of checkbooks 15,000
Selling price per book $20
Variable cost per book $8
Fixed costs for the month $145,000

The actual results for September 2007 were:

Number of checkbooks produced and sold 12,000
Average selling price per book $21
Variable cost per book $7
Fixed costs for the month $150,000

The executive vice president of the company observed that the operating income for September was much less than anticipated, despite a higher-than-budgeted selling price and a lower-than-budgeted variable cost per unit. As the company's management accountant, you have been asked to provide explanations for the disappointing September results.

Bank Management develops its flexible budget on the basis of budgeted per-output-unit revenue and per-output-unit variable costs without detailed analysis of budgeted inputs.

1. Prepare a level 1 analysis of the September performance.
2. Prepare a level 2 analysis of the September performance.
3. Why might Bank Management find the level 2 analysis more informative than the level 1 analysis?

Solution Preview

Solution to your posted problem is provided in a separate Excel file attached, including the following parts.

1 Level 1 ...

Solution Summary

Bank Management Printers, Inc. produces luxury check books with three checks and stubs per page. Each check book is designed for an individual customer and is ordered through the customer's bank.

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