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.
Planning Budget Second Quarter 20XX
Budgeted aircraft sold (a) – 5
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)
Net Operating Income
Wolverine’s income statement showing the actual results of the second quarter 20XX is shown below.
Income Statement Second Quarter 20XX
Actual aircraft sold – 7
Variable Manufacturing Overhead
Fixed Manufacturing Overhead
Variable Selling & Admin. Expenses
Fixed Selling & Admin. Expenses
Net Operating Income
Do the following to complete this assignment:
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.
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.
Calculate the variances between the planning budget and the flexible budget and enter the results in column 3 of the performance report.
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.
Determine whether each variance between the actual 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.
Check you work, make sure your name is on the assignment where requested, and submit your assignment using the guidelines below.
Your assignment is worth a total of 30 points and will be graded according to the following rubric:
15 Points – Flexible Budget: Full credit will be earned if the correct flexible budget data is entered into column 2 of the performance report. 2 points will be deducted for each error, with a maximum deduction of 15 points.
10 Points – Variances: Full credit will be earned if the correct variance amounts are entered into columns 3 and 5 of the performance report. 1 point will be deducted for each error, with a maximum deduction of 10 points.
5 Points – Analysis: Full credit will be earned for correctly determining whether the variance between the flexible budget and the income statement results is favorable or unfavorable. 1 point will be deducted for each error, with a maximum deduction of 5 points.
30 Points Total
You should upload your completed Excel document using the button in the upper right. Make sure to turn in your assignment before the due date, as late assignments will not be accepted!
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