Flexible Budget

DISCUSSION

Our group discuss about case 11-55. Below are the solution:

Question 1
Prepare a new contribution report for February, in which:

* The static budget column in the contribution report is replaced with a flexible budget column. * The variances in the contribution report are recomputed as the difference between the flexible budget and actual columns.

Answer

Particulars | Static Budget | Flexible Budget | Actual | Variance | Unit (pounds) | 200000 | 225000 | 225000 | 0 | Revenue | 1600000 | 1800000 | 1777500 | 22500 U | Direct Material | 290000 | 326250 | 432500 | -106250 U | Direct Labor | 168000 | 189000 | 174000 | 15000 F | Variable Overhead | 324000 | 364500 | 375000 | -10500 U | Total Variable Costs | 782000 | 879750 | 981500 | -101750 U | Contribution Margin | 818000 | 920250 | 796000 | 124250 U |

CALCULATION
Revenue = 225000 X 8.00 per pound = 1800000
Direct material (quantity) =290000 / 200000 = 1.45
Direct material = 1.45 X 225000 = 326250
Direct labor (quantity) = 168000 / 200000 = 0.84 Direct labor = 0.84 X 225000 = 189000
Variable overhead = 1.62 X 225000 = 364500

Total Variable Costs = Direct material + Direct labor + Variable overhead = 326250 + 189000 + 364500 = 879750
Total contribution margin = Revenue – Total variable costs = 920250

Question 2
What is the total contribution margin in the flexible budget column of the new report prepared for requirement (1)?

Answer

Total contribution margin = Revenue – Total variable costs = $1800000 - $879750 = 920250

- Total contribution margin in the flexible budget is