The Vermont Company has requested a performance report that reports both sales activity variances and flexible budget variances. The following table of information is provided: Static Budget Flexible Budget Actual Results?Number of units10,000 F/U 12,000 F/U 12,000?Sales$430,000 $516,000 $526,000 ?Less variable costs: ?Materials 102,200 122,640 124,640 ?Labor 86,000 103,200 105,200 ?Overhead 51,600 61,920 57,920 ?Selling and administrative 34,400 41,280 39,280 ?Contribution margin$155,800 $186,960 $198,960 ?Less fixed

Question

costs:               ?Manufacturing 36,000     36,000     34,000 ?Selling and administrative 74,000     74,000     76,000 ?Net income$45,800    $76,960    $88,960 ?? Required:(1) Compute and enter the variances and label the variances as favorable (F) or unfavorable (U).(2) Which variances are sales volume variance and which variances are flexible budget variances?(3) Comment on this company's performance.

What will be an ideal response?

Answer 1

1)


2) The sales volume variances are between the Static Budget and the Flexible Budget, and the flexible budget variances are between the Actual Results and the Flexible Budget.

3) From this report it appears that the primary causes for actual income being $12,000 above what it should have been are a higher selling price than expected and better control of variable materials and labor costs. It is not possible to be more specific without computing more detailed cost variances (i.e., price and quantity variances for materials, labor, and overhead).