As part of its comprehensive planning and control system, Mopar Company uses a master budget and subsequent variance analysis. You are given the following information that pertains to the company€™s only product, XL-10, for the month of December.

Required

1. Using text Exhibit 14.4 as a guide, complete the missing parts of the following profit report for December. Round all entries to nearest whole number.

2. Based on your completed profit report, determine the dollar amount, and label (F or U) each of the following variances for December:

a. Total master (static) budget variance (also referred to as the total operating income variance for the period).

b. Total flexible-budget variance.

c. Sales volume variance, in terms of operating income.

d. Sales volume variance, in terms of contribution margin.

e. Selling price variance.

3. Explain what is meant by the labels €œfavorable€ and €œunfavorable€ in terms of a profit-variance report of the type you just prepared for the Mopar Company.

4. What information is contained in the total flexible-budget variance for the period? Include in your answer a short discussion of the component variances that can be calculated to explain the causes of the total flexible-budget variance.

5. Some individuals have recently criticized the use of standard costs and flexible budgets to perform the kinds of variance analyses covered in this chapter. Provide an overview of the arguments for and against the use of standard costs and flexible budgets for operational control purposes.

Transcribed Image Text:

Flexible- Sales Volume Varlances Master (Static) Budget Actual Results 100,000 Flexible Budget Budget Varlances Unit sales Sales Variable costs Contribution margin Fixed costs Operating income 90,000 $450,000 $500,000 $375,000 $125,000 55,000 $ 70,000 $180,000 75,000 $105,000