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The comparison of an original planning budget for a given accounting period with the actual results can produce misleading conclusions. As you've discovered in this module's reading, variance in activity level creates a need for the planning budget to be altered - resulting in the preparation of a flexible budget. It is this new flexible budget - and not the planning budget - that should be compared with the actual results. The comparison of a flexible budget and actual performance can help managers discover ways to increase revenues and cut expenses. In this activity you will prepare a flexible budget and compare it to the actual results in a performance analysis.
Wolverine Manufacturing's planning budget for the second quarter 20XX is shown below. Note the budget was built based on an activity level of 5 aircraft.
Wolverine ManufacturingPlanning Budget Second Quarter 20XX
Budgeted aircraft sold (a) - 5
Revenue ($150,000a)
$750,000
Expenses: Direct Materials ($25,000a) Direct Labor ($4,000a) Variable Manufacturing Overhead ($1,000a) Fixed Manufacturing Overhead ($80,000 per month) Variable Selling & Admin. Expenses ($15,000a) Fixed Selling & Admin. Expenses ($25,000 per month)Total Expenses:
125,00020,0005,000240,00075,00075,000540,000
Net Operating Income
210,000
Wolverine's income statement showing the actual results of the second quarter 20XX is shown below.
Wolverine ManufacturingIncome Statement Second Quarter 20XX
Actual aircraft sold - 7
Revenue
$975,000
Expenses: Direct Materials Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead Variable Selling & Admin. Expenses Fixed Selling & Admin. Expenses Total Expenses:
160,00037,0007,500210,00095,00045,000554,500
420,500
Instructions
Do the following to complete this assignment:
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