Brabham Enterprises manufactures tires for the Formula 1 motor racing circuit. For August 2017, it budgeted to manufacture and sell 3,000 tires at a variable cost of $73 per tire and total fixed costs of $53,000.
The budgeted selling price was $115 per tire.
Actual results in August 2017 were 2,900 tires manufactured and sold at a selling price of $116 per tire.
The actual total variable costs were $229,100 and the actual total fixed costs were $50,000.
Required:
1. Prepare a performance report that uses a flexible budget and a static budget.
Begin with the actual results, then complete the flexible budget columns and the static budget columns.
Label each variance as favorable or unfavorable.
Budget ActualVariances
Units sold
Revenues
Variable costs
Contribution margin
Fixed costs
Operating income
2. Comment on the results in #1.