Flexible budget preparation and analysis. 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 2012 included these data:
|
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 2012 were as follows:
|
Number of checkbooks produced and sold |
12,000 |
|
Average selling price per book |
$ 21 |
|
Variable cost per book |
$ 7 |
|
Fixed costs for the month |
$150,000 |
The executive vice president of the company observed that the operating income for September was much lower than anticipated, despite a higher than budgeted selling price and a lower than budgeted variable cost per unit. As the company’s management accountant, you have been asked to provide explanations for the disappointing September results.
Bank Management develops its flexible budget on the basis of budgeted per output unit revenue and per output unit variable costs without detailed analysis of budgeted inputs.
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? Explain your answer.