Regier Company had planned for operating income of $10 million in the master budget but actually achieved operating income of only $7 million.
A) The static-budget variance for operating income is $3 million favorable.
B) The static-budget variance for operating income is $3 million unfavorable.
C) The flexible-budget variance for operating income is $3 million favorable.
D) The flexible-budget variance for operating income is $3 million unfavorable.

Question

Quizplus · Accepted Answer

The static-budget variance is the difference between the budgeted amount and the actual amount. As the Regier Company had planned for operating income of $10 million in the master budget but actually achieved operating income of only $7 million, the static-budget variance is $3 million unfavorable (actual operating income is lower than budgeted operating income). The flexible-budget variance is the difference between the actual results and the flexible budget, which adjusts the budgeted amounts for actual volume. The question does not provide information on actual volume versus budgeted volume, so we cannot determine the flexible-budget variance.

Regier Company Had Planned for Operating Income of $10 Million