# Calculating Flexible Budget Variances

Calculating Flexible Budget Variances

Stellar Packaging Products is experiencing an increase in demand for the month of August as a result of Estrella Coffee’s comeback in its retail outlets. The following fact pattern forms the basis for the static budget:

Stellar Packaging Products

Variable Costs Total

Fixed Costs Total

Raw materials

\$         100,000

Direct manufacturing labor

\$         125,000

Indirect manufacturing labor

\$           105,000

Factory Insurance & Utilities

\$            63,000

Depreciation – Pressroom

\$            38,500

Repairs and maintenance – factory

\$            28,000

Selling, marketing & distribution expenses

\$            40,000

\$            80,000

\$           120,000

Variable Cost and Volume Data

Plastic

Raw materials = 0.10 lbs x \$2.00/lb.

\$                    0.20

Direct Labor = 0.025 hr x \$10/hr.

\$                    0.25

Volume in units

500,000

Sales per unit are \$3.00.

Required:

1. In good form, prepare the static budget operating income in contribution format.
2. Suppose actual sales demand increases to 700,000 units for August; assume the units are within the relevant range. Prepare the flexible budget for August in contribution format.
3. Compute and reconcile the sales volume variance for August. Indicate whether the variance is favorable or unfavorable.
4. In a one page composition, provide an explanation for the change in the sales volume variance for August, and identify the elements which give rise to the difference between the flexible and static budgets. Also explain the reason for completing a flexible budget for the period.

Your paper should meet the following requirements:

• 2-3 pages in total length
• Formatted according to APA format