Sorry for the terrible format. I'm not exactly sure how to fix it.
The following is a problem I'm currently struggling on:
Folsom Fashions sells line of women's dresses. Folsom's performance report for 11/Y1 follows.
…………………Actual………Budget
Dresses sold……….5,000………..6,000
Sales…………..$235,000……..$300,000
Variable costs….$(145,000)……$(180,000)
CM………………$90,000……..$120,000
Fixed costs……..$(84,000)…….$(80,000)
Operating income…..$6,000………$40,000
Company uses flexible budget to analyze its performance & to measure effect on operating income of various factors affecting difference between budgeted & actual operating income.
Effect of sales volume variance on CM for November is:
A) $15,000 unfavorable
B) $18,000 unfavorable
C) $20,000 unfavorable
D) $30,000 unfavorable
I understand how it's $20,000 because (6,000-5,000) x (120,000/6,000) but can someone help me understand it using the following method:
……………….Actual//Flexible Variance//Flexible Budget//Sales Volume Variance//Budget
Dresses sold……..5,000………………………5,000
Sales…………$235,000…….$(5,000)………$240,000………….$(60,000)……$300,000
Variable costs…$145,000…….$(1,000)……..$(144,000)………….$36,000……$(180,000)
CM…………….$90,000…….$(6,000)……….$96,000………….$(24,000)……$120,000
Fixed costs…….$84,000…….$(4,000)………$(80,000)………………$0…….$(80,000)
Operating income…$6,000……$(10,000)……….$16,000………….$(24,000)…….$40,000
From this method, I'm getting $24,000 as the answer. Is this method incorrect? Any help is appreciated, thank you!
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