The Ono Tuna Company uses flexible budgets at the end of each period to evaluate the financial performance of each operating unit. As the accountant in charge, you have been asked to explain to management why actual results during the past year differed from the results contained in the master budget that was prepared before the start of the year.

Required

1. Using text Exhibit 14.4 as a guide, fill in the missing amounts and labels. (Note: A and B are labels.)

	Actual		Flexible		Master
	Results	A?	Budget	B?	Budget
Units	205,000	C?	D?	E?	200,000
Sales revenues	$2,255,000	F?	$2,203,750	G?	H?
Variable costs	J?	$6,000U	I?	K?	$660,000
Fixed costs	$170,000	L?	$180,000	M?	N?
Operating income	O?	P?	Q?	R?	S?

2. What was the total master (static) budget variance for the period? How much of this variance was attributable to sales volume for the period being different from planned? How much is attributable to a combination of selling price, variable cost per unit, and spending on fixed costs being different from plans?
3. A production manager who is attending your presentation asks about the total flexible-budget variable cost variance of $6,000 (U) that was incurred during the past year. Explain how this variance might be further analyzed to provide managerial insight. Assume, for this problem, that there are only three variable costs for the company: direct materials, direct labor, and variable selling/administrative expenses.
4. What nonfinancial performance indicators might be appropriate in this context as part of a comprehensive performance-evaluationsystem?

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2. Total master (static) budget variance - actual operating income - master budget operating income $1,402,500 - $1,310,000 $92500F Sales volume variance, in terms of operating profit - flexible-budget operating income $1.347.250-$1.310.000-$37250E this variance is the pure effect of sales volume being different than planned that is, it is calculated holding selling price per unit, variable cost per unit, and total fixed costs "constant" (they are all at budgeted/standard prices) operating income-master-budge Flexible-budget variance = actual operating income- flexible-budget operating income = $1,402,500 $1,347,250 $55,250F This variance is the net (composite) effect of selling price per unit, variable cost p unit, and total fixed costs being different than planned. 3. The $6,000 is probably considered "immaterial" when taken as a whole. However, this net varianc includes three variable cost items. As such, a first-level breakdown of this variance would calculate th variance for each of the three variable costs. Then, since each variable cost is a function of two factors, pric (rate) and quantity (efficiency), each flexible-budget variable cost variance could be broken down into price variance component and a quantity variance component. 4. A comprehensive operational control system will likely have a combination of financial and nonfinancial performance indicators. Financial performance indicators could include the standard cost variance data referred to above. Nonfinancial performance indicators should be derived from (or linked to) critical succes factors-things at which the organization must succeed in order to achieve competitive advantage. Thus, a variety of answers are possible here, including quality indicators, yield, safety factors (level of contaminants in the fish that are harvested), etc