Example
LIT, Inc. manufactures a product that is sold for $26/unit. Sales volume is the measure of activity for
variable costs. Budgeted costs are shown below:
COGS/unit
Shipping cost/unit
Miscellaneous cost/unit
Salaries
Variable Cost/Unit
$4
$1
$2
Total Fixed Cost
$8,500
$2,300
$3,500
Assume the company prepared a planning budget based on 12,000 units; however, the company actually
sold 13,200 units. Actual revenue for the period was $338,200. Actual variable costs incurred included
$62,500 in cost of goods sold, $6,125 in shipping costs, and $21,375 in miscellaneous costs. Total
actual fixed costs incurred included $9,100 in cost of good sold-9100-2850-35, $2,850 in miscellaneous
costs, and $3,500 in salaries. Prepare a flexible budget for the period, and compute the total activity
variance and the total revenue and spending variance.
