Final answer:
The Rosenberry Company's calculations indicate a favorable revenue price variance and an unfavorable revenue volume variance. The actual total revenues and costs need to be considered to assess overall profitability, as exemplified by various scenarios where the revenue-cost relationship determines the firm's profit or loss.
Step-by-step explanation:
Rosenberry Company has computed revenue variances for January with a revenue price variance of $(350,000) favorable and a revenue volume variance of $50,000 unfavorable. To solve this, we need to determine the actual selling price and the planned volume. Since we know the planned selling price per unit was $10 and actual sales were 175,000 units, the actual total revenues can be calculated.
The revenue price variance represents the difference between the actual revenue received per unit and the expected revenue per unit, multiplied by the number of units sold. A favorable revenue price variance indicates that the actual price was higher than planned. The revenue volume variance, on the other hand, refers to the difference between the actual and expected number of units sold, multiplied by the budgeted price. An unfavorable variance here indicates fewer units were sold than planned.
In the provided examples, we see how total revenues at different prices and quantities can lead to losses if the total costs exceed revenues. For instance, selling five units at a price of $25/unit yields $125 in revenue, but with costs of $130, the firm sees a loss of $5. Similarly, a farm selling 65 packs of frozen raspberries for $2 each when the average cost of production is $2.73, results in the farm losing money because the total revenue is less than total cost. The final example indicates that if a center earns revenues of $20,000 with variable costs of $15,000, it should remain operational as long as revenues cover variable costs.
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