The PRIMARY reason for low operating profits was

ACCOUNTING

Multiple Choice

The actual information pertains to the month of August. As part of the budgeting process Alloway’s Fencing Company developed the following static budget for August. Alloway is in the process of preparing the flexible budget and understanding the results.



Actual Flexible Static

Results Budget Budget

Sales volume (in units) # 20,000 # 25,000

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Sales revenues $1,000,000 $ $1,250,000

Variable costs 512,000 $ _________ 600,000



Contribution margin 488,000 $ 650,000



Fixed costs 458,000 $ _________ 450,000

Operating profit $ 30,000 $ $ 200,000


The PRIMARY reason for low operating profits was

a. the variable-cost variance

b. increased fixed costs

c. a poor management accounting system

d. lower sales volume than planned

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