Question Accounting Question! AllTalk Technologies manufactures capacitors for c
ID: 2417300 • Letter: Q
Question
Question
Accounting Question!
AllTalk Technologies manufactures capacitors for cellular base stations and other communications applications. The companys July 2014 flexible budget shows output levels of 6,500, 8,000, and 10,000 units. The static budget was based on expected sales of 8,000 units.
The company sold 10,000 units during July, and its actual operating income was as follows:
Requirements
1. Prepare a flexible budget performance report for July.
2. What was the effect on AllTalks operating income of selling 2,000 units more than the static budget level of sales?
3. What is AllTalks static budget variance?
4. Explain why the flexible budget performance report provides more useful information to AllTalks managers than the simple static budget variance. What insights can AllTalks managers draw from this performancereport?
Explanation / Answer
1. A flexible budget performance report for July:
On getting the variances of comparison of actuals with flexible budget we have favourable Operating Income $500.
2. the effect on AllTalk's operating income of selling 2,000 units more than the static budget level of sales:
Selling additional 2000 units over the Static budget level, fatched operating income @ 52.77% than 30.73% (at Static budget).
3. AllTalk's static budget variance to actuals :
4. The flexible budget performance report provides more useful information to AllTalk's managers than the simple static budget variance because Flexible budget provides Operating Income of the activities at the various levels and not only just one production level as Static Budget provides. So, managers can easily judge their activity variance at each activity/performance level and that's the insight view drawn.
Particulars Actuals at 10000 units sold $ Flexible budget at 10000 units$ Variance from Flexible budget $ Sales Revenue 246000 240000 6000 F Less: Variable costs 104500 100000 (4500) UF Contribution Margin 141500 140000 1500 F Fixed Costs 54000 53000 (1000) UF Operating Income 87500 87000 500 F