In September, Larson Inc. sold 40,000 units of its only product for $240,000, and incurred a total cost of $225,000, of which $25,000 was fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U.

The sales volume variance, in terms of operating income, for September (to the nearest dollar) was:
A) $20,000 unfavorable.
B) $27,000 unfavorable.
C) $36,000 unfavorable.
D) $75,000 unfavorable.
E) $90,000 unfavorable.

Question

In September, Larson Inc. sold 40,000 units of its only product for $240,000, and incurred a total cost of $225,000, of which $25,000 was fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U.

The sales volume variance, in terms of operating income, for September (to the nearest dollar) was:

The sales volume variance, in terms of operating income, for September (to the nearest dollar) was:
A) $20,000 unfavorable.
B) $27,000 unfavorable.
C) $36,000 unfavorable.
D) $75,000 unfavorable.
E) $90,000 unfavorable.

Quizplus · Accepted Answer

Sales volume variance in terms of contribution margin= $27,000U
To calculate sales volume variance in terms of operating income, we need to use the formula:

Sales volume variance (in terms of operating income) = Sales volume variance (in terms of contribution margin) - Fixed cost flexible budget variance

Fixed cost flexible budget variance = Actual fixed costs - Budgeted fixed costs
Fixed cost flexible budget variance = $25,000 - $25,000 = $0 (since actual and budgeted fixed costs are the same)

Sales volume variance (in terms of operating income) = $27,000U - $0 = $27,000U

Therefore, the sales volume variance, in terms of operating income, for September is $27,000 unfavorable. So, the correct answer is B.