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Flexible Budget and Statistical Analysis

See Attached Spreadsheet.

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

Budget Actual Variance

Units Produced and Sold 20,000 19,000 (1,000)
Sales revenue $400,000 $361,000 $(39,000)
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


(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.


Solution Summary

This solution prepares a flexible budget and calculates the variances relative to the flexible budget.