Briefly describe who should be responsible for preparing an operating budget and why.


a) The Vice President of the Plastics Division of Vandelay Industries prepared a budget for the current period.  Volume and cost data for the budget are provided at left along with actual volume and cost data for the period.

  1. Compute the master budget, the sales volume, and the selling price (flexible budget) variances for the Plastics Division’s revenues for the current period. Show your work.
  2. Interpret what the sales volume variance tells management.
Vandelay Industries
Actual Budget
Volume 11,000 10,500
Revenues per unit $667.25 $675.00
Direct materials per unit $134.50 $132.40
Direct labor per unit $105.75 $109.50
Other variable costs per unit $63.00 $62.25
Total fixed costs $2,550,000 $2,500,000


b) Interpretation of sales volume variance




Vandelay Industries
Actual Budget
Volume – Dresses 11,000 10,500
Revenues per dress $667.25 $675.00
Direct materials price per yard of cloth $74.7222 $66.20
Direct materials quantity – yards per dress 1.8 2


a. Compute the flexible budget variance for direct materials.

b. Compute the direct material price and quantity variances.

c. Interpret the direct material price variance.

d. Provide three possible reasons for the direct material quantity variance.



Cupcake Delights Inc. manufactures a variety of cupcakes that are sold in the bakery section of grocery stores across Florida. Cupcake’s Human Resources Manager, Mary Jones,  is working on next year’s budget.  Given the information below, how many bakery workers should Ms. Jones plan on hiring for next year? Show your work.

Planned production for next year is 500,000 cupcakes.

Average time to produce and package a cupcake is 10 minutes.

A normal work week is for an employee is 40 hours per week.

Each employee is given two weeks paid vacation.

On average, each employee takes 16 hours of sick leave each year.

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