Question Details

ATC-22-1-Static versus flexible budget variances
Vince jacobs is the manufacturing production supervisor for high-five inline skates 
company.trying to explain why he did not get the year-end bonus he has expected,he told 
his wife,?this is the dumbest place I ever worked. Last year the  company set up this 
budget assuming it would sell 200,000 skates. Well,it sold only 190,000. The company lost 
money and gave me a bonus for not using as much materials and labor as was called for in 
the budget. This year, the company has the same 200,000 goal and it sells 210,000. The 
company?s making all kinds of money. You?d think I?d get this big fat bonus. 
Instead,management tells me I used more materials and labor than we budgeted. They say 
the company would have made a lot more money if I?d stayed within my budget. I guess I 
gotta wait for another bad year before I get a bonus. Like I said,this is the dumbest 
place I ever worked.?
Note:combine variable cost(including materials,labor and overhead).

High five companys master budget and the actual results for the most recent year of 
operating activity follow.
A)        Did high-five increase unit sales by cutting proces or by using some other strategy?
B)        Is Mr.Jacobs correct in his conclusion that something is wtrong with the company?s 
performance evaluation process?If,so what do you suggest be done to improve the system?
C)        Prepare a flexible budget and recompute the budget variances
D)        Explain what might have caused the fixed costs to be different from the amount 
budgeted.
E)        Is the fixed overhead volume variance favorable or unfavorable?Explain the effect of 
this variance on the cost of each set of inline skates.



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