Question 5-Revenue, sales variances and customer profitability analysis Sales budget for 2015: Type Unit Sold Price per unit Variable Cost per unit ? 6000 units 4000 units $100 $200 $40 $80 B

Solution:

1. Sales Price and Variable Cost Variance

Type A

Sales price variance = Actual sales at the market price - Actual sales at the budgeted price

= 7000*90 - 7000*100

= 630000 - 700000

= 70000 unfavourable

Variable cost variance = Actual variable cost incurred - Total variable cost applied to actual production using standard rate

= 7000 * 45 - 7000 * 40

= 315000 - 280000

= 35000 unfavourable

Type B

Sales price variance = 4000 * 210 - 4000* 200

= 840000 - 800000

= 40000 favourable

Variable cost variance = 4000 * 88 - 4000 * 80

= 352000 - 320000

= 32000 unfavourable

2. Sales Mix and Quantity Variance

Type A and B

Sales Mix Variance   = ( Actual Mix - Standard Mix ) * Actual Quantity used

Actual Mix = Standard price of A * Actual Quantity of A + Standard Price of  B * Actual Quantity of B/ Actual Quantity A + Actual Quantity B

Standard Mix = S.P of A * S. Q of A + S.P of B * S.Q of B

Actual Mix = 100 * 7000 + 200 * 4000 / 7000 + 4000

= 700000 + 800000 / 11000

= 1500000 / 11000 = 1.65

Standard Mix = 100 * 6000 + 200*4000 / 6000 + 4000

= 600000 + 800000 / 10000

= 1400000 / 10000 = 1.40

Sales Mix Variance = ( 1.65 - 1.40 ) 11000

= .25 * 11000

= 275 unfavourable

Quantity Variance Of A = (Actual Quantity - Standard Quantity ) * Standard price

= (7000 - 6000 ) 45

= 1000*45 = 45000

Quantity Variance of B = ( 4000 - 4000 ) * 80

= 0