Here are data for the stove division of Appliances Now, which produces and sells a complete line of kitchen stoves:

The budget, set at the beginning of the year, was based on estimates of sales and costs. Administrative expenses include charges by corporate headquarters for providing strategic guidance. These fixed costs are allocated to divisions using revenues as the allocation base.

Required:

A. Assume that a different volume of stoves was sold than was budgeted, and prepare a flexible budget using the change in revenue to adjust the variable costs. Calculate budget variances.

B. Due to a booming economy, the stove division€™s unit sales were higher than anticipated, even though the division€™s share of the stove market fell from 22% to 20% during the year. Using information from the flexible budget, estimate the impact on profits of the decline in market share. 

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(In thousands) Budget Actual $16,491 $17,480 Revenue Variable production costs 5,892 6,451 Fixed manufacturing costs 1,977 2,032 Variable selling expenses 456 550 Fixed selling expenses 1,268 1,275 Administrative expenses 4,773 5,550 $ 2,118 $ 1,629 Operating income