Bank Management Printers Inc. produces luxury checkbooks with three checks and stubs per page. Each checkbook is designed for an individual customer and is ordered through the customer's bank. The company's operating budget for September 2014 includes this dа ta:

Number of Checkbooks: 15,000

Selling Price per book: $20

Variable cost per book: $8

Fixed costs for the month: $145,000

The actual results for September 2015 were as follows:

Number of Checkbooks: 12,000

Selling Price per book: $21

Variable cost per book: $7

Fixed costs for the month: $150,000

1. Prepare a static-budget based variance analysis of the September performance

2. Prepare a flexible budget based variance analysis of the September performance

3. Why might Bank Management find the flexible budget based variance analysis more informative than the static budget based variance analysis?

1. Prepare a static-budget based variance analysis of the September performance

Actual Static-Budget Static

Results Variances Budget

-1 (2) = (1) - (3) - 3

Units sold 12,000 3,000 U 15,000

Revenue $252,000^a $ 48,000 U $300,000c

Variable costs 84,000^d 36,000 F 120,000f

Contribution margin 168,000 12,000 U 180,000

Fixed costs 150,000 5,000 U 145,000

Operating income $18,000 $ 17,000 U $35,000

$17,000 U

Total static-budget variance

b.

2. Prepare a flexible budget based variance analysis of the September performance

Flexible - Sales

Actual Budget Flexible Volume Static

Results Variances Budget Variances Budget

(1) (2) = (1) - (3) (3) (4) = (3) - (5) (5)

Units sold 12,000 0 12,000 3,000 U 15,000

Revenue $252,000a $12,000 F $240,000b $60,000 U $300,000c

Variable costs 84,000 12,000F 96,000e 24,000 F 120,000f

Contribution margin 168,000 24,000 F 144,000 36,000 U 180,000

Fixed costs 150,000 5,000 U 145,000 0 145,000

Operating income $18,000 $19,000 F ($1,000) $36,000 U $35,000

$19,000 F $36,000 U

Total flexible-budget Total sales-volume

variance variance

$17,000 U

Total static-budget variance

The letters below represents

a 12,000 * $21 = $252,000 d 12,000 * $7 = $84,000

b 12,000 * $20 = $240,000 e 12,000 * $8 = $96,000

c 15,000 * $20 = $300,000 f 15,000 * $8 = $120,000

3 ... flexible budget based variance analysis is an offshoot of static budget based variance analysis. Static budget will not be considered because there is a reduction in volume from 15000 t0 12000. Also flexible budget allows the management to make some changes as per assumptions while static budget is the same the changes from the assumption notwithstanding.