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Assume that in October 2019 the Schmidt Machinery Company (Exhibit 14.1) manufactured and sold 950 units for $835 each. During this month, the company incurred $475,000 total variable costs and $180,000 total fixed costs. The master (static) budget data for the month are as given in Exhibit 14.1.

Required:

1. Prepare a flexible budget for the production and sale of 950 units.

2. Compute for October 2019:

a. The sales volume variance, in terms of operating income. Indicate whether this variance was favorable (F) or unfavorable (U).

b. The sales volume variance, in terms of contribution margin. Indicate whether this variance was favorable (F) or unfavorable (U).

3. Compute for October 2019:

a. The total flexible-budget (FB) variance. Indicate whether this variance was favorable (F) or unfavorable (U).

b. The total variable cost flexible-budget variance. Indicate whether this variance was favorable (F) or unfavorable (U).

c. The total fixed cost flexible-budget (FB) variance. Indicate whether this variance was favorable (F) or unfavorable (U).

d. The selling price variance. Indicate whether this variance was favorable (F) or unfavorable (U).

Comparison of Actual and Budgeted Operating Income EXHIBIT 14.1 SCHMIDT MACHINERY COMPANY Analysis of Operating Income For October 2019 Actual Operating Income Master (Static) Budget Variances Units Sales Variable costs Contribution margin Fixed costs Operating income 780 $639,600 350.950 220U 1,000 $800,000 55 450,000 $350,000 25 150,000 $200,000 100% 100% $160.400U 45% $288 44% $ 61350U 1910650U 25% $ 72,000U 160.650 20% $128,000 *U denotes an unfavorable effect on operating income. **F denotes a favorable effect on operating income * 8*Actual fixed factory overhead cost $130,650; actual fixed selling and administrative costs $30,000. fBudgeted fixed factory overhead cost $120,000; budgeted fixed selling and administrative costs $30,000

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