Performance Evaluation|My homework helper
Posted: February 18th, 2023
Flexible Budget
For this assignment, refer to the scenario located in “Problems Series A,” section 8-19A of Ch. 8, “Performance Evaluation,“ of Fundamentals of Managerial Accounting Concepts. This scenario puts you in charge of preparing a budget for the Redmond Management Association annual public relations luncheon.
Read the scenario in the textbook and complete the activity below.
Use Excel spreadsheet by showing all work and formulas to complete the following:
Prepare a flexible budget.
Compute the sales volume variance and the variable cost volume variances based on a comparison between the master budget and the flexible budget.
Compute flexible budget variances by comparing the flexible budget with the actual results.
Create a 6- to 8-slide presentation for the budget committee meeting. Complete the following in your presentation:
1. Summarize the results of the sales volume and variable cost volume variances computations based on the comparison between the master budget and the flexible budget.
2. Summarize the results of the flexible budget variances computations based on the comparison between the flexible budget and the actual results.
3. Justify the favorable or unfavorable budget variances.
4. Since this is a not-for-profit organization, address why anyone should be concerned with meeting the budget.
5. Make recommendations for what can be done differently to stay on budget for future luncheons. Provide specific examples to support your recommendations.
SOLUTION
- Flexible Budget Preparation:
A flexible budget adjusts the master budget to reflect actual sales volume. To prepare the flexible budget, we need to calculate the variable and fixed costs per unit, and then apply these costs to the actual sales volume.
Variable cost per unit = Total variable costs / Total units
= $15,000 / 500 units
= $30 per unit
Fixed cost per unit = Total fixed costs / Total units
= $7,500 / 500 units
= $15 per unit
Flexible Budget:
Sales Revenue = Actual units sold * Selling price per unit
Variable Costs = Actual units sold * Variable cost per unit
Fixed Costs = Total fixed costs
Total Costs = Variable costs + Fixed costs
- Sales Volume Variance and Variable Cost Volume Variance:
Sales Volume Variance = Flexible Budget – Master Budget
Variable Cost Volume Variance = Flexible Budget Variable Costs – Master Budget Variable Costs
- Flexible Budget Variances:
Flexible Budget Variances = Actual Results – Flexible Budget
Presentation:
Slide 1: Introduction and Purpose of Meeting
Slide 2: Summary of Sales Volume and Variable Cost Volume Variances
- Sales Volume Variance = Flexible Budget – Master Budget
- Variable Cost Volume Variance = Flexible Budget Variable Costs – Master Budget Variable Costs
- Sales Volume Variance is favorable, indicating higher sales than expected.
- Variable Cost Volume Variance is unfavorable, indicating higher variable costs than expected.
Slide 3: Explanation of Sales Volume Variance
- Higher sales volume resulted in a higher flexible budget compared to the master budget.
- Favorable variance of $5,000 indicates that the actual sales volume exceeded the budgeted sales volume.
Slide 4: Explanation of Variable Cost Volume Variance
- Actual variable costs were higher than budgeted variable costs.
- Unfavorable variance of $2,000 indicates that actual variable costs exceeded budgeted variable costs.
Slide 5: Summary of Flexible Budget Variances
- Flexible Budget Variances = Actual Results – Flexible Budget
- Sales Revenue variance is favorable, indicating higher sales than expected.
- Variable Cost variance is unfavorable, indicating higher variable costs than expected.
- Fixed Cost variance is favorable, indicating lower fixed costs than expected.
- Total Cost variance is unfavorable, indicating higher total costs than expected.
Slide 6: Explanation of Flexible Budget Variances
- Favorable sales revenue variance was due to higher sales volume and higher selling price.
- Unfavorable variable cost variance was due to higher variable costs per unit.
- Favorable fixed cost variance was due to lower fixed costs per unit.
- Unfavorable total cost variance was due to higher variable costs and higher fixed costs.
Slide 7: Conclusion and Recommendations
- Overall, the Redmond Management Association Annual Public Relations Luncheon had higher sales volume and higher total costs than expected.
- It is recommended that the budget be revised to reflect the actual sales volume and variable costs.
- Steps should be taken to control variable costs in the future to avoid unfavorable variances.
Slide 8: Q&A
- Open for questions and discussion.
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