The flexible-budget variance is the difference between an actual result and the corresponding flexible-budget amount based on actual output level in the budget period. The flexible-budget contribution margin is equal to budgeted contribution margin per unit times actual units sold of each product. Exhibit 15-11, column 2, shows the flexible-budget calculations. The flexible budget measures the contribution margin that the Provalue Division would have budgeted for the actual quantities of cases sold. The flexible-budget variance is the difference between columns 1 and 2 in Exhibit 15-11. The only difference between columns 1 and 2 is that actual units sold of each product is multiplied by actual contribution margin per unit in column 1 and budgeted contribution margin per unit in column 2. The $400,000 U total flexible-budget variance arises because actual contribution margin on business sales of $264.45 per Provalue is lower than the budgeted amount of $275 per Provalue and offsets the slightly higher actual contribution margin of $226.275 versus the budgeted contribution margin of $225 on wholesale-channel sales. The Provalue Division managers are aware that the lower contribution margin of $10.55 per computer on business sales resulted from higher variable ordering and testing costs and have put in place action plans to reduce these costs in the future.
The sales-volume variance is the difference between a flexible-budget amount and the corresponding static-budget amount. In Exhibit 15-11, the sales-volume variance shows the effect on the budgeted contribution margin of the difference between the actual quantity of units sold and the budgeted quantity of units sold. The sales-volume variance of $1,725,000 U is the difference between columns 2 and 3 in Exhibit 15-11. In this case, it is unfavorable overall because while unit sales of Provalue in the wholesale-channel were higher than budgeted, unit sales in the business-channel, which are expected to be more profitable on a per computer basis, were below budget. Provalue Division managers can gain substantial insight into the sales-volume variance by subdividing it into the sales-mix variance and the sales-quantity variance.