Question

Olivet Devices sells two models of fitness devices. The budgeted price per unit for the wireless model is $55 and the budgeted price per unit for the wireless and cellular model is $100. The master budget called for sales of 53,600 wireless models and 13,400 wireless and cellular models during the current year. Actual results showed sales of 39,500 wireless models, with a price of $52 per unit, and 17,100 wireless and cellular models, with a price of $97 per unit. The standard variable cost per unit is $42 for a wireless model and $77 for a wireless and cellular model.

Required:
a. Compute the sales activity variance for these data.
b. Break down the sales activity variance into mix and quantity parts.

Answer 1

a. The sales activity variance is $621,500 unfavorable.

b. The sales activity variance of $621,500 unfavorable can be further dissected into mix and quantity variances to pinpoint the sources of deviation from the master budget.

Step-by-step explanation:

The mix variance accounts for the difference in the actual proportion of wireless and wireless/cellular models sold compared to the budgeted mix. If the actual mix deviates from the budgeted mix, it contributes to the mix variance.

On the other hand, the quantity variance results from the variance in the actual quantity sold compared to the budgeted quantity.

In this case, the unfavorable sales activity variance suggests that the actual sales performance did not align with the budgeted expectations.

The mix and quantity variances shed light on specific areas of discrepancy, helping management understand whether the issue lies in pricing, sales mix, or overall quantity sold. Analyzing these variances provides actionable insights for future decision-making and strategic adjustments.