Flexible Budgets and Operating-Income Variance Analysis The following information is available for Mitchelville Products Company for the month of July:
|
Actual
|
Master Budget
|
|
Units
|
3,800
|
4,000
|
|
Sales revenue
|
$53,200
|
$60,000
|
|
Variable manufacturing costs
|
19,000
|
16,000
|
|
Fixed manufacturing costs
|
16,000
|
15,000
|
|
Variable selling and administrative expenses
|
7,700
|
8,000
|
|
Fixed selling and administrative expenses
|
10,000
|
9,000
|
Required
1. Set up a spreadsheet to compute the July sales volume variance and the flexible-budget variance for the month in terms of both contribution margin and operating income.
2. Discuss implications of these variances on strategic cost management for Mitchelville.
3. Create an electronic spreadsheet that will allow the firm to prepare pro forma budgets for activities within its relevant range of operations and prepare flexible budgets when sales are:
a. 3,800 units.
b. 4,100 units.