Problem:
The marketing, finance and accounting students estimate sales of 15,000 units for the upcoming period at Chance Company.
The budget was based on the assumptions that follow:
Per Unit
Sales $60
Variable Costs:
Manufacturing costs 30
Selling and administrative costs 10
Fixed Costs:
Manufacturing costs 75,000
Selling and administrative costs 125,000
During the period the company actually produced and sold 15,100 units @$62. Actual variable costs and fixed costs:
Variable costs:
Manufacturing costs 35
Selling and administrative costs 9
Fixed costs:
Manufacturing costs 80,000
Selling and administrative costs 123,000
Required:
1. Prepare a master budget.
2. The manager now wants to evaluate the company's performance by comparing actual costs and revenues using the master budget but the students have advised against it.
3. Prepare a flexible budget.
4. if management compares actual revenues and costs to the appropriate flexible budget, will they be able to fully understand what went right and what went wrong with the operation during the period? why or why not?