Four Flags is a retail department store On January 1 2014 Fo

Four Flags is a retail department store. On January 1, 2014, Four Flags\' accountants used the following data to develop the master budget for Four Flags for 2014:

Cost

Fixed

Variable (per unit sold)

Cost of Goods Sold

$0

$6.80

Selling and Promotion Expense

$220,000

$0.80

Building Occupancy Expense

$190,000

$0.10

Buying Expense

$140,000

$0.50

Delivery Expense

$115,000

$0.10

Credit and Collection Expense

$76,000

$0.02

Expected unit sales in 2014 were 1,200,000, and 2014 total revenue was expected to be $12,000,000. Actual 2014 unit sales turned out to be 1,000,000, and total revenue was $10,000,000. Actual total costs in 2014 were:

Cost of Goods Sold

$6,000,000

Selling and Promotion Expense

$1,100,000

Building Occupancy Expense

$380,000

Buying Expense

$690,000

Delivery Expense

$190,000

Credit and Collection Expense

$40,000

Required
Compute the flexible-budget variances for the following two cost items (NOTE: enter favorable variances as positive numbers and unfavorable variances as negative numbers):

  Buying Expense_______    

  Credit and Collection Expense ________

Solution

Flexible-budget variances for the following two cost items:

Items Flexible budget (1000000units) Actual Flexible budget variance

Buying expenses $140000+($0.5 * 1000000)=$640000 $690000 -$50000

Credit

Collection Expense $76000 + (0.02*1000000)=96000 $40000 $56000