RTI Company’s master budget calls for production and sale of 19,200 units for $96,000; variable costs of $42,240; and fixed costs of $21,200. During the most recent period, the company incurred $33,200 of variable costs to produce and sell 21,200 units for $86,200. During this same period, the company earned $26,200 of operating income. (Do not round intermediate calculations. Round final answer to the nearest whole dollar.)
Required: 1. Determine the following for RTI Company: a. Flexible-budget operating income. b. Flexible-budget variance, in terms of contribution margin. c. Flexible-budget variance, in terms of operating income. d. Sales volume variance, in terms of contribution margin. e. Sales volume variance, in terms of operating income.
We have provided with the information as follow
| Budget | Actual | ||||||
| Unit Produce |
Total | Per unit | Unit Produce |
Total | Per unit | ||
| sale | 19200 | 96000 | 5 | 21200 | 86200 | 4.066038 | |
| Less: | |||||||
| Variable cost | 19200 | 42240 | 2.2 | 21200 | 33200 | 1.566038 | |
| Contribution | 19200 | 53760 | 2.8 | 21200 | 53000 | 2.5 | |
| Less: | |||||||
| Fixed Cost | 19200 | 21200 | 1.104167 | 21200 | 26800 | 0.791045 | |
| Operating income | 19200 | 32560 | 1.695833 | 21200 | 26200 | 1.235849 |
(a )
. Flexible-budget operating income is $ 38,160
working notes for the above answer is as follow
| Unit Produce |
Total | Per unit | |
| sale | 21200 | 106000 | 5 |
| Less: | |||
| Variable cost | 21200 | 46640 | 2.2 |
| Contribution | 21200 | 59360 | 2.8 |
| Less: | |||
| Fixed Cost | 21200 | 21200 | 1 |
| Operating income | 21200 | 38160 | 0.555556 |
(b)
Flexible-budget variance, in terms of contribution margin
b Contribution margin FB variance = actual CM − flexible budget contribution margin
=53000-59360
=6360 Unfavrable
c. Flexible-budget variance, in terms of operating income.
Operating income FB variance = actual operating income − FB operating income
=26200-38160
=11960 unfavrable
d. Sales volume variance, in terms of contribution margin.
Sales volume variance, in terms of contribution margin = FB contribution margin − Master budget contribution margin
=59360-53760
=5600 Favorable
e. Sales volume variance, in terms of operating income.
Sales volume variance, in terms of operating income = FB operating income − Master budget operating income
=38160-32560
=5600 Favorable
