Western Outfitters Mountain Sports projected 2008 sales of 75,000 units at a unit sale price of $12.00. Actual 2008 sales were 72,000 units at $14.00 per unit. Actual variable costs, budgeted at $4.00 per unit, totaled $4.75 per unit. Budgeted fixed costs totaled $375,000 while actual fixed costs amounted to $400,000.
-What is the flexible budget variance for variable expenses?

Question

Western Outfitters Mountain Sports projected 2008 sales of 75,000 units at a unit sale price of $12.00. Actual 2008 sales were 72,000 units at $14.00 per unit. Actual variable costs, budgeted at $4.00 per unit, totaled $4.75 per unit. Budgeted fixed costs totaled $375,000 while actual fixed costs amounted to $400,000. 
-What is the flexible budget variance for variable expenses?

Quizplus · Accepted Answer

The flexible budget variance for variable expenses is calculated by comparing the actual variable expenses to what the variable expenses would have been for the actual level of activity, had everything gone according to the budget. The actual variable expenses were 72,000 units * $4.75/unit = $342,000. The flexible budget for variable expenses would have been 72,000 units * $4.00/unit = $288,000. The variance is $342,000 - $288,000 = $54,000 unfavorable, because the actual expenses were higher than the budgeted expenses.

Western Outfitters Mountain Sports Projected 2008 Sales of 75,000 Units