Question

Check It Off Printers, Inc., produces luxury checkbooks with three checks and stubs per page. Each checkbook is designed for an individual customer and is ordered through the customer’s bank. The company’s operating budget for September 2013 included these data:

Number of checkbooks........... 13,000
Selling price per book ........... $ 21
Variable cost per book ........... $ 6
Fixed costs for the month ......... $ 125,000
The actual results for September 2013 were as follows:
Number of checkbooks produced and sold ..... 9,500
Average selling price per book .......... $ 23
Variable cost per book............... $ 4
Fixed costs for the month .............. $ 132,000

The executive vice president of the company observed that the operating income for September was much lower than anticipated, despite a higher- than- budgeted selling price and a lower- than- budgeted variable cost per unit. As the manager responsible for the checkbook unit, you have been asked to provide explanations for the disappointing September results. Check It Off 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.

Required
1. Prepare a static budget– based variance analysis of the September performance.
2. Prepare a flexible budget– based variance analysis of the September performance.
3. Why might Check It Off find the flexible budget– based variance analysis more informative than the static budget– based variance analysis? Explain your answer.



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  • CreatedJanuary 15, 2015
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