Sales per the performance budget would be $280,000. The variable expense percentage for the performance budget would be the same as the planning budget so variable expenses are equal to $200,000 ¸ $250,000 ´ $280,000 or $224,000.
Fixed expenses on the performance budget are the same as fixed expenses on the planning budget. Fixed expenses remain fixed by definition within the relevant range.
Sales per the performance budget are the same as sales on the income statement. Therefore there is no performance variance.
The variable expenses per the actual results are higher than the variable expenses per the performance budget by $360. The variance is unfavorable because the company incurred more expenses than they budgeted for.
The net income per the actual results is lower than the net income per the performance budget by $860. The variance is unfavorable because the company had less income than they budgeted for.
This planning variance is the difference between the contribution margin per the planning budget and the contribution margin per the performance budget. The difference between these two amounts is $640 ($32,000 – $31,360) and the variance is unfavorable because the performance budget has less contribution margin dollars to cover fixed expenses and provide for a profit than the planning budget due to reduced sales.
The primary cause of the planning variance is a change in sales. The problem states that there is no change in sales price so the change must be due to a change in sales volume.
Another name for the performance budget is a flexible budget.
To solve this, first compute the performance variance for each fixed expense and then divide the variance by the related performance budget amount. The variance percentage for rent is -4.69%, the percentage for depreciation is 5.56%, interest is -8.70% and salaries is -2.78%. The largest is interest percentage of -8.70% calculated by dividing the performance variance of -80 by the performance budget amount for interest of $920.
The contribution margin performance variance is favorable when the dollar amount of the contribution margin actual results is higher than the dollar amount of the contribution margin performance budget. This means that the actual results provide more dollars towards covering fixed expenses and earning a profit.
The original breakeven is $44,517 (fixed expenses of $16,400 divided by the contribution margin ratio of 36.84%). If sales for beverages go up by $5,000 and sales for food go down by $5,000 (total sales stay the same), then the company is changing its sales mix, selling more of the product with the lower contribution margin ratio and less of the product with the higher contribution margin ratio. This will cause the contribution margin of the company as a whole to go down as well. Since fixed expenses do not change, the breakeven for the company must go up to cover those fixed expenses. Although not required to answer this question, the revised CMR for the company as a whole would be 35.96% so the revised breakeven would be $45,606 calculated by dividing fixed expenses of $16,400 by the revised CMR of 35.96%.