Perez Manufacturing Company established the following standard price and cost data: Sales price $ 8.60 per unit Variable manufacturing cost $ 3.90 per unit Fixed manufacturing cost $ 2,000 total Fixed selling and administrative cost $ 700 total Perez planned to produce and sell 2,000 units. Actual production and sales amounted to 2,300 units. Required Determine the sales and variable cost volume variances. Classify the variances as favorable (F) or unfavorable (U). Determine the amount of fixed cost that will appear in the flexible budget. Determine the fixed cost per unit based on planned activity and the fixed cost per unit based on actual activity.

A) Volume Vairance

         BUDGETED 2,000qty   ACTUAL 2,300 qty  VARIANCECOMMENT

SALES  Budgeted $17,200Actual $19,780Variance$2,580F

VC        Budged      $7,800         Actual $8,900Variance ($1,170)U

B) The amount of fixed cost in the flexible budget = $2,700 (Fixed manufacturing cost and fixed selling and administration cost).

C) Fixed cost per unit based on planned activity = $1.35 ($2,700/2,000).

D) Fixed cost per unit based on actual activity = $1.17 ($2,700/2,300).

Explanation:

a) Sales volume variance is determined by subtracting planned activity from actual activity multiplied by the sales price, i.e. 2,300 - 2,000 x $8.60 = $2,580.

b) Variable cost volume variance is determined by subtracting planned activity from actual activity multiplied by variable cost per unit.  This gives us $1,170 (2,300 - 2,000 x $3.90).

c) The total fixed cost is $2,700 (Fixed manufacturing cost of $2,000 plus fixed selling and administrative cost of $700).

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