Chapter 16, Problem 40E

1.

To determine

Prepare a flexible-budget contribution income statement for Qtr. 2, showing the Qtr. 2 results, the Qtr. 1 results, and the flexible budget.

Explanation of Solution

Prepare a flexible-budget contribution income statement for Qtr. 2, showing the Qtr. 2 results, the Qtr. 1 results, and the flexible budget:

Table (1)

2.

To determine

Calculate the sales volume variance for each product based both on sales dollars and contribution margin.

Explanation of Solution

Calculate the sales volume variance for each product based both on sales dollars and contribution margin:

$\text{Sales Volume Variance = Budgeted sales price}\times \text{Change in Sales Volume}$

In sales Dollars:

Product S:

$\begin{array}{c}\text{Sales Volume Variance = Budgeted sales price}\times \text{Change in Sales Volume}\\ \text{=}\left[\left(0.2\times 12,000\right)–\left(0.25\times 10,000\right)\right]\times \$35\\ =\$3,500\text{U}\end{array}$

Product M:

$\begin{array}{c}\text{Sales Volume Variance = Budgeted sales price}\times \text{Change in Sales Volume}\\ \text{=}\left[\left(0.80\times 12,000\right)–\left(0.75\times 10,000\right)\right]\times \$90\\ =\$189,000\text{F}\end{array}$

In Contribution Margin:

Product S:

$\begin{array}{c}\text{Sales Volume Variance = Budgeted sales price}\times \text{Change in Sales Volume}\\ \text{=}\left[\left(0.2\times 12,000\right)–\left(0.25\times 10,000\right)\right]\times \left(\$35-\$22\right)\\ =\$1,300\text{U}\end{array}$

Product M:

$\begin{array}{c}\text{Sales Volume Variance = Budgeted sales price}\times \text{Change in Sales Volume}\\ \text{=}\left[\left(0.80\times 12,000\right)–\left(0.75\times 10,000\right)\right]\times \left(\$90-\$48\right)\\ =\$88,200\text{U}\end{array}$

3.

To determine

Compute the sales mix variance, and the sales quantity variance for each product, based on contribution margin.

Explanation of Solution

Compute the sales mix variance, and the sales quantity variance for each product, based on contribution margin:

Sales Mix Variance:

Product S:

$\begin{array}{c}\left(\begin{array}{l}\text{Sales Mix }\\ \text{Variance}\end{array}\right)\text{ = }\left[\left(\begin{array}{l}\text{Actual sales }\\ \text{mix of the}\\ \text{ product}\end{array}\right)\text{ – }\left(\begin{array}{l}\text{budgeted }\\ \text{sales}\\ \text{ mix of the}\\ \text{ product}\end{array}\right)\right]\times \left(\begin{array}{l}\text{Total units}\\ \text{ sold}\end{array}\right)\times \left(\begin{array}{l}\text{Budgeted }\\ \text{contribution }\\ \text{margin per unit }\\ \text{of the product}\end{array}\right)\\ =\left(0.2-0.25\right)\times 12,000\times \left(\$35-\$22\right)\\ =\$7,800\text{U}\end{array}$

Product M:

$\begin{array}{c}\left(\begin{array}{l}\text{Sales Mix }\\ \text{Variance}\end{array}\right)\text{ = }\left[\left(\begin{array}{l}\text{Actual sales }\\ \text{mix of the}\\ \text{ product}\end{array}\right)\text{ – }\left(\begin{array}{l}\text{budgeted }\\ \text{sales}\\ \text{ mix of the}\\ \text{ product}\end{array}\right)\right]\times \left(\begin{array}{l}\text{Total units}\\ \text{ sold}\end{array}\right)\times \left(\begin{array}{l}\text{Budgeted }\\ \text{contribution }\\ \text{margin per unit }\\ \text{of the product}\end{array}\right)\\ =\left(0.8-0.75\right)\times 12,000\times \left(\$90-\$48\right)\\ =\$25,200\text{F}\end{array}$

Sales Quantity Variance:

Product S:

$\begin{array}{c}\left(\begin{array}{l}\text{Sales Quantity }\\ \text{Variance}\end{array}\right)\text{ = }\left[\left(\begin{array}{l}\text{Total }\\ \text{units of }\\ \text{all products }\\ \text{sold}\end{array}\right)\text{ – }\left(\begin{array}{l}\text{Budgeted }\\ \text{total units }\\ \text{of all}\\ \text{products}\end{array}\right)\right]\times \left(\begin{array}{l}\text{Budgeted}\\ \text{sales mix }\\ \text{of the}\\ \text{product}\end{array}\right)\times \left(\begin{array}{l}\text{Budgeted }\\ \text{contribution }\\ \text{margin per unit }\\ \text{of the product}\end{array}\right)\\ =\left(12,000–10,000\right)\times 0.25\times \left(\$35-\$22\right)\\ =\$6,500\text{F}\end{array}$

Product M:

$\begin{array}{c}\left(\begin{array}{l}\text{Sales Quantity }\\ \text{Variance}\end{array}\right)\text{ = }\left[\left(\begin{array}{l}\text{Total }\\ \text{units of }\\ \text{all products }\\ \text{sold}\end{array}\right)\text{ – }\left(\begin{array}{l}\text{Budgeted }\\ \text{total units }\\ \text{of all}\\ \text{products}\end{array}\right)\right]\times \left(\begin{array}{l}\text{Budgeted}\\ \text{sales mix }\\ \text{of the}\\ \text{product}\end{array}\right)\times \left(\begin{array}{l}\text{Budgeted }\\ \text{contribution }\\ \text{margin per unit }\\ \text{of the product}\end{array}\right)\\ =\left(12,000–10,000\right)\times 0.75\times \left(\$90-\$48\right)\\ =\$63,000\text{F}\end{array}$