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The comparison of an original planning budget for a given
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The comparison of an original planning budget for a given accounting period with the actual results can produce misleading conclusions. As you've discovered in this module's reading, variance in activity level creates a need for the planning budget to be altered - resulting in the preparation of a flexible budget. It is this new flexible budget - and not the planning budget - that should be compared with the actual results. The comparison of a flexible budget and actual performance can help managers discover ways to increase revenues and cut expenses. In this activity you will prepare a flexible budget and compare it to the actual results in a performance analysis.

Wolverine Manufacturing's planning budget for the second quarter 20XX is shown below. Note the budget was built based on an activity level of 5 aircraft.

Wolverine Manufacturing
Planning Budget Second Quarter 20XX

Budgeted aircraft sold (a) - 5

Revenue ($150,000a)

$750,000

Expenses:
     Direct Materials ($25,000a)
     Direct Labor ($4,000a)
     Variable Manufacturing Overhead ($1,000a)
     Fixed Manufacturing Overhead ($80,000 per month)
     Variable Selling & Admin. Expenses ($15,000a)
     Fixed Selling & Admin. Expenses ($25,000 per month)
Total Expenses:


125,000
20,000
5,000
240,000
75,000
75,000
540,000

Net Operating Income

210,000


Wolverine's income statement showing the actual results of the second quarter 20XX is shown below.

Wolverine Manufacturing
Income Statement Second Quarter 20XX

Actual aircraft sold - 7

Revenue

$975,000

Expenses:
     Direct Materials 
     Direct Labor 
     Variable Manufacturing Overhead 
     Fixed Manufacturing Overhead 
     Variable Selling & Admin. Expenses 
     Fixed Selling & Admin. Expenses 
Total Expenses:


160,000
37,000
7,500
210,000
95,000
45,000
554,500

Net Operating Income

420,500

Instructions

Do the following to complete this assignment:

  1. Download the flexible budget and performance report template here.Note that the planning budget information and actual results from the income statement have already been entered into the performance report.
  2. Wolverine Manufacturing actually sold 7 aircraft during the second quarter 20XX. Create a flexible budget based on 7 aircraft; then enter the flexible budget data into column 2 of the performance report.
  3. Calculate the variances between the planning budget and the flexible budget and enter the results in column 3 of the performance report.
  4. The actual results from the first quarter income statement have been entered in column 4. Calculate the variance between the actual results and the flexible budget. Enter the variance in column 5 of the performance report.
  5. Determine whether each variance between theactual results and flexible budgetis favorable or unfavorable. In column 6 of the performance report, enter F for favorable and U for unfavorable next to each variance.
  6. Check you work, make sure your name is on the assignment where requested, and submit your assignment using the guidelines below.

Enter your name here! Instructions:

 

1. Wolverine Manufacturing actually sold 7 aircraft during the second quarter 20XX. Create a flexible b

 

performance report.

 

2. Calculate the variances between the planning budget and the flexible budget and enter the results i

 

3. The actual results from the first quarter income statement have been entered in column 4. Calculate

 

variance in column 5 of the performance report.

 

4. Determine whether each variance between the actual results and flexible budget is favorable or unf

 

unfavorable next to each variance. Wolverine Manufacturing Performance Rep

 

Column 1 Production

 

Revenue

 

Expenses:

 

Direct Materials

 

Direct Labor

 

Variable Manufacturing Overhead

 

Fixed Manufacturing Overhead

 

Variable selling and administrative expenses

 

Fixed selling and administrative expenses

 

Total Expenses

 

Net Operating Income Planning Budget

 

5

 

$

 

750,000.00

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$ 125,000.00

 

20,000.00

 

5,000.00

 

240,000.00

 

75,000.00

 

75,000.00

 

540,000.00

 

210,000.00 cond quarter 20XX. Create a flexible budget based on 7 aircraft; then enter the flexible budget data into column 2 of the flexible budget and enter the results in column 3 of the performance report.

 

ve been entered in column 4. Calculate the variance between the actual results and the flexible budget. Enter the and flexible budget is favorable or unfavorable. In column 6 of the performance report, enter F for favorable and U for rine Manufacturing Performance Report Second Quarter 20XX

 

Column 2

 

Column 3

 

Column 4 Flexible Budget

 

7 Activity Variances Actual Results

 

$ 975,000.00 $

 

$

 

$

 

$

 

$

 

$

 

$

 

$ 160,000.00

 

37,000.00

 

7,500.00

 

210,000.00

 

95,000.00

 

45,000.00

 

554,500.00

 

420,500.00 Column 5

 

Variance Between

 

Flexible Budget &

 

Actual Results budget data into column 2 of the flexible budget. Enter the

 

enter F for favorable and U for Column 6 Analysis: Favorable

 

or Unfavorable

 







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