A Company's Master Budget for October Is to Manufacture and Sell

question 7

Multiple Choice

A company's master budget for October is to manufacture and sell 30,000 units, for a total sales revenue of $270,000, total variable costs of $180,000, and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units, and generated $45,000 of operating income in October.

The sales volume variance, in terms of operating income, for October (rounded to the nearest whole dollar) was:

• A) $3,600 favorable.
• B) $6,000 favorable.
• C) $15,400 favorable.
• D) $21,000 favorable.

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Definitions:

Variable Components

Variable components are costs or elements of a product, service, or project that change in proportion with the level of activity or volume.

Fixed Components

Parts of a budget or costs that remain constant regardless of the level of production or business activity.

Direct Materials Cost

The cost of raw materials that are directly traceable to the manufacturing of a product.

Break-Even Point

The level of production or sales at which total revenues equal total expenses, resulting in no net loss or gain.