The Carolina Products Company has just completed a flexible budget analysis of 2 nd quarter operating income, as shown here:

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Based on the above data, which of the following statements would be a correct interpretation of the flexible budget variance for variable expenses?

Question

The Carolina Products Company has just completed a flexible budget analysis of 2 nd quarter operating income, as shown here:

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Based on the above data, which of the following statements would be a correct interpretation of the flexible budget variance for variable expenses?

Quizplus · Accepted Answer

The flexible budget variance for variable expenses is calculated by subtracting the flexible budget amount from the actual amount spent on variable expenses. In this case, the flexible budget for variable expenses was $357,120 and the actual amount spent was $365,400, resulting in a variance of $8,280 (actual amount - flexible budget amount = variance). Since the variance is positive, it means that the actual variable expenses were higher than the flexible budgeted amount. The only choice that explains this increase in variable expenses is choice B, which states an increase in variable cost per unit. This means that the variable costs for producing the units increased beyond what was originally budgeted, leading to a higher overall expense.

The Carolina Products Company Has Just Completed a Flexible Budget