Caldwell Co. uses flexible budgets to control its selling expenses. Monthly sales are expected to be from $300,000 to $360,000. Variable costs and their percentage relationships to sales are: Sales commissions5% Advertising4% Traveling7% Delivery1% Fixed selling expenses consist of sales salaries $40,000 and depreciation on delivery equipment $10,000. The actual selling expenses incurred in February, 2019, by Caldwell are as follows: Sales commissions$17,200 Advertising12,000 Traveling23,700 Delivery2,400 Fixed selling expenses consist of sales salaries $41,500 and depreciation on delivery equipment $10,000. Prepare a flexible budget performance report, assuming that February sales were $330,000.

Answer and Explanation:

The preparation of flexible budget is shown below:-

Budget Actual Difference F/U

$330,000 $330,000

Variable expenses

Sales commissions $16,500 $17,200 $700 U

($330,000 * 5%)

Advertising $13,200 $12,000 $1200 F

($330,000 * 4%)

Traveling $23,100 $23,700 $600 U

($330,000 * 7%)

Delivery $3,300 $2,400 $900 F

($330,000 * 1%)

Total variable expenses a $56,100 $55,300 $800 F

Fixed expenses

Sales salaries $40,000 $41,500 $1,500 U

Depreciation $10,000 $10,000 0 NA

Total fixed expenses b $50,000 $51,500 $1,500 U

Total expenses (a+b) $106,100 $106,800 $700 U

Therefore, if budget is more than actual then it will be favorable and if actual is more than budget then it will be unfavorable.

According to this the classification of every items is shown above.