Danner Fashions sells a line of women's dresses. Danner's performance report for November is shown below: (CMA adapted)
The company uses a flexible budget to analyze its performance and to measure the effect on operating income of the various factors affecting the difference between budgeted and actual operating income. $\begin{array}{lcccc}
&&\text { Actual}&&\text { Budget }\
\text { Dresses sold } & & \underline{ 5,000} & & \underline{ 6,000 }\
\text { Sales } & \$ & 235,000 & \$ & 300,00 \
\text { Variable costs } & & \underline{(145,000) }& & \underline{(180,000) }\
\text { Contribution margin } & & \$90,000 & & 120,000 \
\text { Fixed Costs } & & \underline{ (84,000)} & & \underline{ (80,000)} \
\text {Operating income} &\$& \underline{ \underline{ 6,000 }}&\$& \underline{ \underline{ \$ 40,000}} \
\end{array}$
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The variable costs flexible budget variance for November is:
A) $5,000 favorable.
B) $5,000 unfavorable.
C) $4,000 favorable.
D) $4,000 unfavorable.

Question

Danner Fashions sells a line of women's dresses. Danner's performance report for November is shown below: (CMA adapted)
The company uses a flexible budget to analyze its performance and to measure the effect on operating income of the various factors affecting the difference between budgeted and actual operating income. $\begin{array}{lcccc}
&&\text { Actual}&&\text { Budget }\
 \text { Dresses sold } & & \underline{ 5,000} & & \underline{ 6,000 }\
 \text { Sales } & \$ & 235,000 & \$ & 300,00 \
 \text { Variable costs } & &  \underline{(145,000) }& &  \underline{(180,000) }\ 
  \text { Contribution margin } &  & \$90,000 & & 120,000 \
\text { Fixed Costs } & & \underline{ (84,000)} & & \underline{ (80,000)} \ 
  \text {Operating income} &\$&   \underline{ \underline{ 6,000 }}&\$& \underline{ \underline{ \$ 40,000}} \  
\end{array}$  
-
The variable costs flexible budget variance for November is:
A) $5,000 favorable.
B) $5,000 unfavorable.
C) $4,000 favorable.
D) $4,000 unfavorable.

Quizplus · Accepted Answer

The flexible budget variance for variable costs is calculated as the difference between the actual variable costs and the flexible budget variable costs for the actual level of activity (5,000 dresses). The flexible budget for variable costs at 5,000 dresses would be (180,000/6,000) * 5,000 = $150,000. The actual variable costs were $145,000, resulting in a $5,000 favorable variance ($150,000 - $145,000).

Danner Fashions Sells a Line of Women's Dresses - the Variable Costs Flexible Budget Variance for November Is

Danner Fashions Sells a Line of Women's Dresses -
the Variable Costs Flexible Budget Variance for November Is