Acct 222 Case Study

...

Female ($20.00-$18.00) x 2000 $4000 F

Male

Actual Flexible Budget

AQall x Amix x Aselling price AQall x Amix x Bselling price

2000 x $8.00 2000 x 7.50

$16,000 $15,000

[pic 21][pic 22][pic 23]

Selling price variance

$1,000 F

Female

Actual Flexible Budget

AQall x Amix x Aselling price AQall x Amix x Bselling price

2000 x $20.00 $2000 x $18.00

$40,000 $36,000

[pic 24][pic 25][pic 26]

Selling price variance

$4,000 F

(iv)

Comparison of budgeted and actual performance – from (i) above we can see that there is a $3000 U profit variance (ie Budgeted profit = $6000 and actual profit = $3000)

The reconciliation is:

Budgeted profit $6000

Variances

Sales price variances - Male $1000 F

Female $4000 F

Sales mix variance $4200 F

Sales Quantity variance $5200 U

Fixed overhead expenditure variance ($20000-$24000) $4000 U

Labour rate variance – Male ($3.00-$3.50) x 2000 $1000 U

Female ($10-$11) X 2000 $2000 U

Total Profit variance $3000 U

Actual profit $3000

(v). The report/memo should include the following points:

- The favourable sales price variances suggest that selling prices may have increased or the clients may have required different treatments.

- Compared with the budget the sales volume has declined resulting in an overall sales volume variances of $1000 U ($4200-$5200). This has been offset by the favourable mix variance with sales consisting of a greater proportion of the higher margin female clients. Overall, the sales variances for the period were $4000 favourable.

- The decline in profit, compared to budget, was due to an increase in fixed overhead expenditure and higher than planned commission rates. The latter may be due to commission rates being linked to selling prices. To ascertain the reasons for the adverse fixed overhead expenditure variance the individual fixed overhead variance categories should be examined.