14-36 Flexible Budget and Operating-Income Variances Kermit Company’s master budget calls for pro- duction and sale of 12,000 units for $48,000; variable costs of $18,000; and fixed costs of $16,000. During the most recent period, the company incurred $24,000 of variable costs to produce and sell 15,000 units for $64,000. During this same period, the company earned $25,000 of operating income.
1. Determine the following for Kermit Company:
a. Flexible-budget operating income.
b. Flexible-budget variance, in terms of contribution margin.
c. Flexible-budget variance, in terms of operating income.
d. Sales volume variance, in terms of contribution margin.
e. Sales volume variance, in terms of operating income.
2. Explain why the contribution margin sales volume variance and the operating income sales volume vari- ance for the same period are likely to be identical.
3. Explain why the contribution margin flexible-budget variance is likely to differ from the operating income flexible-budget variance for the same period.