Assignment Background: RTI Company's master budget calls for production and sales of 18,000 units for $81,000; variable costs of $30,600; and fixed costs of $20,000. The company incurred $32,000 of variable costs to produce and sell 20,000 units for $85,000, and earned $25,000 operating income.
Problem Information:
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Master budget sales volume (units)
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18,000
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Budgeted total sales revenue
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$81,000
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Budgeted total variable costs
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$30,600
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Budgeted fixed costs
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$20,000
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Actual variable costs incurred
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$32,000
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Actual production/sales volume (units)
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20,000
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Actual total sales revenue
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$85,000
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Actual operating income
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$25,000
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Assignment Requirements:
Question 1: Determine RTI Company's
a. Flexible budget operating income.
b. Contribution margin flexible-budget variance.
c. Operating income flexible-budget variance.
d. Sales volume variance, in terms of contribution margin.
e. Sales volume variance, in terms of operating income.
Question 2: Explain why the contribution margin sales volume variance and the operating income sales volume variance for the same period are likely to be identical.
Question 3: Explain why the contribution margin flexible-budget variance is likely to differ from the operating income flexible-budget variance for the same period.
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