Question

Presented is information pertaining to an item sold by wheeping creek general store: actual budget unit sales 300 250 unit selling price $ 52 $ 50 unit standard variable costs (40) (40) unit contribution margin $ 12 $ 10 revenues $ 7,800 $ 6,250 variable costs (6,000) (5,000) contribution margin at standard costs $ 1,800 $ 1,250 compute the revenue, sales price, and the sales volume variances.

A) Revenue Variance = $550 F, Sales Price Variance = $2 U, Sales Volume Variance = 50 units U
B) Revenue Variance = $550 F, Sales Price Variance = $2 U, Sales Volume Variance = 50 units F
C) Revenue Variance = $550 U, Sales Price Variance = $2 U, Sales Volume Variance = 50 units F
D) Revenue Variance = $550 U, Sales Price Variance = $2 F, Sales Volume Variance = 50 units U

Answer 1

To calculate the total revenue and marginal revenue, multiply the quantity sold by the price per unit at each level of output. The profit maximizing quantity is determined by finding the intersection of the marginal revenue and marginal cost curves, which in this case is three units.

Step-by-step explanation:

To calculate the total revenue and marginal revenue, we need to multiply the quantity sold by the price per unit. For each output level:

1. One unit: total revenue = 1 * $72 = $72; marginal revenue = $72 - $0 = $72
2. Two units: total revenue = 2 * $72 = $144; marginal revenue = $144 - $72 = $72
3. Three units: total revenue = 3 * $72 = $216; marginal revenue = $216 - $144 = $72
4. Four units: total revenue = 4 * $72 = $288; marginal revenue = $288 - $216 = $72
5. Five units: total revenue = 5 * $72 = $360; marginal revenue = $360 - $288 = $72

The total cost is the sum of the fixed costs and the variable costs. For each output level:

1. One unit: total cost = $100 + $64 = $164; marginal cost = $164 - $0 = $164
2. Two units: total cost = $100 + $84 = $184; marginal cost = $184 - $164 = $20
3. Three units: total cost = $100 + $114 = $214; marginal cost = $214 - $184 = $30
4. Four units: total cost = $100 + $184 = $284; marginal cost = $284 - $214 = $70
5. Five units: total cost = $100 + $270 = $370; marginal cost = $370 - $284 = $86

To determine the profit maximizing quantity, we need to look at the intersection of the marginal revenue and marginal cost curves. In this case, it occurs at three units.

Table:

Output Level Total Revenue Marginal Revenue Total Cost Marginal Cost

1 $72 $72 $164 $164

2 $144 $72 $184 $20

3 $216 $72 $214 $30

4 $288 $72 $284 $70

5 $360 $72 $370 $86