Homework 3

Question 1

sales volume variance

Answer 1

represents the impact on operating profit of selling a different volume of sales compared to the budgeted volume reflected in the master budget. As such, the calculation of the variance holds three other factors constant: selling price per unit, variable cost per unit, and total fixed costs. Note that this variance can be defined in terms of contribution margin, in which case the calculation looks at the impact on contribution margin of selling an amount different from the sales volume reflected in the master budget for the period.

Question 2

flexible-budget variance

Answer 2

represents the composite effect on operating income of changes in three factors: selling price per unit, variable cost per unit, and total fixed costs. Thus, in calculating the flexible-budget variance we “hold constant” sales volume. In this case, there is a zero flexible-budget variance. However, this does not imply that there is no selling price variance, or no variable cost flexible budget variance, or no fixed cost spending variance. It simply means that these three variances net to zero