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 is 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 master budget operating income for September was:

Question

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The master budget operating income is calculated by adding the sales volume variance to the actual operating income. The actual operating income is the difference between actual sales and actual costs: $240,000 - $225,000 = $15,000. Adding the sales volume variance of $27,000U (unfavorable) gives $15,000 + $27,000 = $42,000. Since the total flexible-budget variance is $63,000U, the master budget operating income is $42,000 + $63,000 = $105,000.