E7-16 (Flexible Budget) Brabham Enterprises manufactures tires for the Formula I motor racing circuit. For August 2014, it budgeted to manufacture and sell 3,000 tires at a variable cost of $74 per tire and total fixed costs of $54,000. The budgeted selling price was $110 per tire. Actual results in August 2014 were 2,800 tires manufactured and sold at a selling price of $112 per tire. The actual total variable costs were $229,600, and the actual total fixed costs were $50,000. 1) Prepare a performance report that uses a flexible budget and a static budget. 2) Comment on the results in requirement 1. E7-20 (Flexible-Budget and Sales Volume Variances) Luster, Inc., produces the basic fillings used in many popular frozen desserts and treats – vanilla and chocolate ice creams, puddings, meringues, and fudge. Luster uses standard costing and carries over no inventory from one month to the next. The ice-cream product group’s results for June 2014 were as follows: Performance Report, June 2014 Actual Static Results Budget Units (pounds) 350 000 335 000 Revenues $2 012 500 $1 976 500 Variable manufacturing costs 1 137 500 1 038 500 Contribution margin $875 000 $938 000 Sam Adler, the business manager for ice-cream products, is pleased that more pounds of ice cream were sold than budgeted and that revenues were up. Unfortunately, variable manufacturing costs went up, too. The bottom line is that contribution margin declined by $63,000, which is less than 3% of the budgeted revenues of $1,976,500. Overall, Adler feels that the business is running fine. 1) Calculate the static-budget variance in units, revenues, variable manufacturing costs, and conribution margin. What percentage is each static-budget variance relative to its static-budget amount? 2) Break down each static-budget variance into a flexible-budget variance and a sales-volume variance. 3) Calculate the selling-price variance. 4) Assume the role of management accountant at Luster. How would you present the results to Sam Adler? Should he be more concerned? If so, why?
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