Ryota Products has an industrial mower division that operates as a profit center. Below is a partially completed responsibility report for the first quarter. Responsibility Report Flexible Flexible Budget Actual Budget Variance U/F Percentage Variance U/F Sales Revenue
703,000 Variable Expenses 309,400 320,000 Contribution Margin 378,700 383,000 Traceable Fixed 371,000 369,000 Expenses Division Margin
14,000 Compute the percentage variance for the flexible budget variance for traceable fixed expenses. (Round your answer to two decimal places.) A. 0.54% F B. 0.54% U C. 1.12% U D. 1.12% F
The Correct Answer and Explanation is:
Correct Answer: A. 0.54% F
To calculate the percentage variance for traceable fixed expenses, the following formula is used:Percentage Variance=(Flexible Budget−ActualFlexible Budget)×100\text{Percentage Variance} = \left( \frac{\text{Flexible Budget} – \text{Actual}}{\text{Flexible Budget}} \right) \times 100Percentage Variance=(Flexible BudgetFlexible Budget−Actual)×100
Step-by-step Calculation:
- Flexible Budget for Traceable Fixed Expenses = $371,000
- Actual Traceable Fixed Expenses = $369,000
- Variance = $371,000 – $369,000 = $2,000 Favorable
Now, calculate the percentage variance:2,000371,000×100=0.5391%\frac{2,000}{371,000} \times 100 = 0.5391\%371,0002,000×100=0.5391%
Rounded to two decimal places, the percentage variance is 0.54% Favorable.
Explanation:
In this responsibility report, the comparison focuses on how actual expenses differ from the flexible budget. The traceable fixed expenses were expected to be $371,000 based on the flexible budget. However, the actual amount spent was $369,000, which is $2,000 less than planned. This results in a favorable variance, indicating better cost control or operational efficiency.
A favorable variance occurs when actual expenses are less than budgeted, suggesting effective management within the profit center. The percentage variance quantifies this difference as a proportion of the budgeted amount, allowing for a consistent way to evaluate performance across different expense categories or time periods.
Therefore, the correct answer is A. 0.54% F.
