Assume that Schmidt Machinery Company (Exhibit 14.1) manufactured and sold 900 units for $840 each in June. The company incurred $414,000 total variable expenses and $180,000 total fixed expenses.

EXHIBIT 14.1

Comparison of Actual and

Budgeted Operating Income

Required for the Month of June:

1. Prepare a flexible budget for the production and sale of 900 units.

2. Compute for June:

a. The sales volume variance, in terms of operating income.

b. The sales volume variance, in terms of contribution margin.

3. Calculate for June:

a. The total flexible-budget (FB) variance.

b. The total variable cost flexible-budget variance.

c. The total fixed cost flexible-budget (FB) variance.

d. The selling price variance.

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SCHMIDT MACHINERY COMPANY Analysis of Operating Income For October 2010 (1) (2) (3) Master (Static) Budget Actual Operating Income Variances Units 1,000 780 220U* $ 160,400U 99,050F Sales Variable costs $639,600 350,950 $288,650 160,650 $128,000 $800,000 100% 100% 55 450,000 $ 61,350U 10,650U $350,000 150,000 Contribution margin Fixed costs 45% 44% 25 $ 72,000U $200,000 Operating income 20% 25% * U denotes an unfavorable effect on operating income. 'F denotes a favorable effect.