15.8 Sales Variances Flashcards
For the first week of the month, a bakery budgeted to sell 100 cakes at $35 each. They actually sold 105 cakes at $40 each. The selling price variance is
A. $525 favorable
B. $525 unfavorable
C. $700 favorable
D. $700 unfavorable
A. $525 favorable
- Sales price variance = (ACM-SCM) x AQ
- Use sales prices instead of CM’s in this example
= (40-35)x105 cakes = 525
Actual sales > Budgeted sales prices, so variance is favorable
At the beginning of the year, a company budgeted to sell 600,000 units at a price of $12 per unit. It actually sold 585,000 units at a price of $12.50 per unit. The sales-volume variance is
A. $112,500 favorable
B. $180,000 unfavorable
C. $187,500 unfavorable
D. $292,500 favarable
B. $180,000 unfavorable
- Sales volume variance = (A Q - SQ) xSP
(585,000-600,000) x $12 = $180,000 U
In analyzing company operations, the controller of the corporation found a $250,000 favorable flexible-budget revenue variance. The variance was calculated by comparing the actual results with the flexible budget. This variance can be wholly explained by
A. The total flexible budget variance
B. The total sales volume variance
C. The total static budget variance
D. Changes in unit selling prices
D. Changes in unit selling prices
Variance analysis can be used to judge the effectiveness of selling departments. If sales differ from the amount budgeted, the difference may be attributable to either the sales price variance or the sales volume (quantity) variance. Changes in unit selling prices may account for the entire variance if the actual quantity sold equals the quantity budgeted. None of the revenue variance is attributed to the sales volume variance because no such variance exists when a flexible budget is used. The flexible budget is based on the level of sales at actual volume.
When comparing its actual operating income to its master budget operating income, the controller noted that actual total sales units equaled budgeted total sales units and budgeted fixed costs equaled actual fixed costs. He also noted that both products were sold for their budgeted selling prices per unit and each product had both a budgeted and actual contribution margin ratio of 40%. However, the company experienced a favorable static budget variance for operating income for the period. Which one of the following is a viable explanation for this variance?
A. The production mix was different than budgeted
B. The company produced fewer units than budgeted
C. The method used to allocate fixed selling and administrative costs to its products was different than planned
D. The company’s income tax rate was lower than budgeted
A. The product mix was different than budgeted.
The company has actual total sales units that equaled budgeted total sales units, budgeted fixed costs that equaled actual fixed costs, budgeted selling prices per unit that equaled actual selling price per unit, and budgeted contribution margin ratio that equaled actual contribution margin ratio. With a product mix different than budgeted, operating income can differ from the static budget.
For a company that produces more than one product, the sales volume variance can be divided into which two of the following additional variances?
A. Sales mix variance and sales price variance
B. Sales quantity variance and sales mix variance
C. Sales price variance and flexible budget variance
D. Sales mix variance and production volume variance
B. Sales quantity variance and sales mix variance
At the beginning of the year, a company budgeted to sell 600,000 units at a price of $12 per unit. It actually sold 585,000 units at a price of $12.50 per unit. The sales volume variance is
A. $112,500 favorable
B. $292,500 favorable
C. $187,500 unfavorable
D. $180,000 unfavorable
D. $180,000 unfavorable
For a single product, the sales volume variance is the change in the contribution margin attributable solely to the difference between the actual and budgeted unit sales. It can be calculated as follows: (AQ - SQ) X SP.
The actual and standard quantities are 585,000 and 600,000, respectively. The standard prices is $12 per unit. Thus, the sales volume variance is $180,000 unfavorable. [(585,000 - 600,000) x $12]
A company sells two products, Product E and Product F, and had the following data for last month:
Product E
Unit sales
- Budget: 5,500
- Actual: 6,000
Unit Contribution margin
- Budget: $4.50
- Actual: $4.80
Product F
Unit sales
- Budget: 4,500
- Actual: 6,000
Unit Contribution margin
- Budget: $10.00
- Actual: $10.50
The company’s sales mix variance is
A. $3,420 favorable
B. $17,250 favorable
C. $3,300 favorable
D. $18,150 favorable
C. $3,300 favorable
The first step is to calculate the contribution margin (CM) for a “composite” unit using budgeted mix percentages and budgeted margins:
- Product E: {[5,500 / (5,500 + 4,500)] x $4.50} = $2.475
- Product F: {[4,500 / (5,500 + 4,500)] x $10.00} = $4.500
Composite Budget UCM = $6.975
This process is repeated using actual mix percentages and budgeted margins:
- Product E: {[6,000 / (6,000 + 6,000)] x $4.50} = $2.250
- Product F: {[6,000 / (6,000 + 6,000)] x $10.00} = $5.000
Composite Actual UCM = $7.250
The difference between the two is multiplied by the number of units sold to arrive at the sales mix variance [(6,000 + 6,000) x ($7.250 actual - $6.975 budget) = (12,000 x $0.275) = $3,300 favorable].
Clear Plus, Inc., manufactures and sells boxes of pocket protectors. The static master budget and the actual results for May appear in the opposite column.
Actual
Unit sales: 12,000
Sales $132,000
Variable Costs of sales: (70,800)
Contribution Margin: 61,200
Fixed Costs: (32,000)
Operating Income: 29,200
Static Budget
Unit sales: 10,000
Sales $100,000
Variable Costs of sales: (60,000)
Contribution Margin: 40,000
Fixed Costs: (30,000)
Operating Income: 10,000
Which one of the following statements concerning Clear Plus’s actual results for May is correct?
A. The flexible budget variable cost variance is $10,800 unfavorable.
B. The sales price variance is $32,000 favorable.
C. The sales volume variance is $8,000 favorable.
D. The flexible budget variance is $8,000 favorable.
C. The sales volume variance is $8,000 favorable.
The sales volume variance is the change in contribution margin caused by the difference between the actual and budgeted volume. It equals the budgeted unit contribution margin times the difference between actual and expected volume, or $8,000 [(12,000 – 10,000) × ($10 – $6)]. The sales volume variance is favorable because actual sales exceeded budgeted sales.
The following are the relevant data for calculating sales variances for Fortuna Co., which sells its sole product in two countries:
Gallia
Budgeted selling price per unit: $6.00
Budgeted Variable cost per unit: (3.00)
= Budgeted contribution margin per unit $3.00
Budgeted unit sales: 300
Budgeted mix percentage: 60%
Actual units sold: 260
Actual selling price per unit: $6.00
Helvetica
Budgeted selling price per unit: $10.00
Budgeted Variable cost per unit: (7.50)
= Budgeted contribution margin per unit $2.50
Budgeted unit sales: 200
Budgeted mix percentage: 40%
Actual units sold: 260
Actual selling price per unit: $9.50
Total
Budgeted unit sales: 500
Budgeted mix percentage: 100%
Actual units sold: 520
Actual selling price per unit: N/A
The sales volume variance for the two countries is
A. $130 U.
B. $150 U.
C. $30 F.
D. $120 U.
C. $30 F.
The sales volume variance in Gallia is $120 U [$3.00 budgeted UCM × (260 actual units sold – 300 budgeted unit sales)]. The sales volume variance in Helvetica is $150 F [$2.50 budgeted UCM × (260 actual units sold – 200 budgeted unit sales)]. Thus, the two-country sales volume variance is $30 F ($150 F – $120 U).
Folsom Fashions sells a line of women’s dresses. Folsom’s performance report for November follows.
The company uses a flexible budget to analyze its performance and to measure the effect on operating income of the various factors affecting the difference between budgeted and actual operating income.
Dresses sold: Actual 5,000 / Budget 6,000
Sales: Actual 235,000 / Budget 300,000
Variable costs: Actual (145,000) / Budget (180,000)
Contribution margin: Actual 90,000 / Budget 120,000
Fixed costs: Actual (84,000) / Budget (80,000)
Operating income: Actual 6,000 / Budget 40,000
The effect of the sales quantity variance on Folsom’s contribution margin for November is
A. $30,000 unfavorable
B. $18,000 unfavorable
C. $20,000 unfavorable
D. $15,000 unfavorable
C. $20,000 unfavorable
The sales quantity variance is the difference between the actual and budgeted units, time the budgeted unit CM.
(5,000 - 6,000) x ($120,000 / 6,000) = $20,000 U
A company’s gross profit for Year 2 and Year 1 was as follows:
Sales
Year 2: $ 950,400
Year 1: $ 960,000
Cost of goods sold
Year 2: (556,800)
Year 1: (576,000)
Gross profit
Year 2: $ 393,600
Year 1: $ 384,000
Assuming that Year 2 selling prices were 15% lower than Year 1 selling prices, what was the decrease in gross profit caused by the selling price change?
A. $134,400
B. $144,000
C. $167,718
D. $142,560
C. $167,718
Given a 15% decrease in prices, Year 2 sales were 85% of Year 2 sales at Year 1 prices. Hence, Year 2 sales at Year 1 prices equal $1,118,118 ($950,400 ÷ 85%). Sales and gross profit were $167,718 ($1,118,118 – $950,400) lower because of the decrease in prices.
