Answer all aspects of question 1 with explanations

Here is the static budget

Question 1

The CEO is convinced of the Director of Sales ability to achieve a profit of $40,000 a month and reports those costs on the companys static budget. However, actual sales for the first month were 12,900 units.

The actual revenues and expenses for the month were:

VARIABLE COSTS (per unit)

Sales: $237,457

Direct Materials: $15,200

Direct Labor: $58,050

Indirect Materials: $1,305

Indirect Labor: $2,200

Utilities for Factory: $8,900

Supplies for Factory: $ 1,925

Variable Administrative Salaries $9,702

Variable Sales Commissions: $14,760

FIXED COSTS (per month)

Factory Supervisor Salaries: $43,000

Factory Depreciation: $15,500

Property Taxes (Factory): $4,500

Insurance (Factory): $3,500

Maintenance (Factory): $1,860

Fixed Sales Salaries $10,000

Depreciation, Sales Equip. $12,250

Advertising $5,720

1. Prepare a report showing the revenue and spending and activity variances for each cost, including total

and net income amounts. (Remember, you will need to prepare a flexible budget for the actual level of

activity in order to complete this report.)

2.Based on your report, answer the following:

a.Look at the Revenue Variance in conjunction with the Selling Expense variances. What is a possible

explanation for these variances?

b. Are the Activity Variances mostly favorable or unfavorable? Is this a good thing? What do activity

variances tell us about the companys performance?

c.What do you notice about the FIXED activity variances? Why is this the case?

d.What do the Direct and Indirect Materials spending variances indicate about the companys use of materials?

FLEXIBLE BUDGET 9,200 11,700 13,200 $170,200 78,200 $216,450 99.450 $244,200 112,200 Number of units Revenue Total variable costs Total fixed costs Total costs Net 92.000 92,000 92.000 170.200 191,450 204.200 0 25,000 40,000 income