A fixed budget is a budget that does not change or flex for increases or decreases in volume. ("Volume" could be sales, units produced, or some other activity.) A fixed budget is also known as a
static budget. To illustrate a fixed budget, let's assume that a company pays a 5% sales commission on all of its sales. If the company prepares a fixed budget and it is projecting sales of $1 million, the budget for sales commissions will be fixed at $50,000. If the actual sales end up being only $900,000 the budget for sales
commissions will remain unchanged at the fixed amount of $50,000. If the actual sales are $1,100,000 the budget for sales commissions will also be $50,000. Had the company prepared a flexible budget, the budget for sales commissions would be expressed as 5% of sales. This means that the budget for sales commissions will be $50,000 only when sales are $1
million. If the company has actual sales of $900,000, the budget for sales commissions will flex and will be $45,000 (5% of $900,000). If the actual sales are $1,100,000 the budget for sales commissions will be $55,000.Definition of Fixed Budget
Example of Fixed Budget
Accounting 002
Summer SEMTER 2021
INSTRUCTOR: Kevin Farmer
LA Trade Tech
Chapter 21
Question 1:The fixed budget indicates sales of $50,000.Actual sales were $55,000. The
variance is:$5,000 favorable
Question 2:The fixed budget indicates direct laborcosts of $27,500. Actual direct labor
costs were $27,000. The variance is:$500 favorable
Question 3:A company sells a product for $3. Costof goods sold is budgeted at 60% of
sales. The company prepares a flexible budget at twosales volumes. At a sales volume of
50 units, budgeted COGS will be:$90
(3×50= 150)⇒150×60%=90
At a sales volume of 60 units, budgeted COGS willbe:$108
(3×60=180)⇒180×60%=108
Question 4:A company budgets administrative salariesat $5,000 at a sales level of 1,000
units. At a sales level of 1,200 units, budgeted administrativesalaries will be:$5,000
Question 5:Fixed costs equal $25,000; variable costper unit is $2.50 and units produced
are 10,000. The total budgeted costs is:$50,000
25000 + (10000×2.50)= 50,000
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The fixed budget indicates sales of $50,000. Actual sales were $55,000. Thevariance is:
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XxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxManagers use budget reports to answer all of the following questions:XxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxA flexible budget has which of the following characteristics?
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Preset costs for delivering a product or service under normal conditions are called
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Budget reports are commonly prepared for:
XxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxWhen compared to the budgeted amount, if the actual cost or revenue contributesto a higher income, then the variance is consideredA fixed budget performance report indicates a sales variance of $20,000 favorable.The reason for the variance:All of the following individuals work to help set standard costs:XxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxStandard costs have which of the following characteristics? (Check all that apply.)
XxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxWhich of the following is the correct formula?BudgetBlank 1Blank 1 report , Correct Unavailablecontain relevantinformation that compares actual results to planned activities.The main factors that can cause a variance include the following. Select all thatapply.Costs developed which identify what products should cost are calledXxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxABC Company has set the following standards for one unit of product: Directmaterials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour.The company produced 35,000 units and had the following actual costs: Directmaterials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at atotal cost of $374,400. Compute the total direct materials variance.
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