Question

Master Products has the following information for the year just ended:

Budget Actual
Sales in units 15,000 14,000
Sales $150,000 $147,000
Less: Variable expenses 90,000 82,600
Contribution margin $ 60,000 $ 64,400
Less: Fixed expenses 35,000 40,000
Operating income $ 25,000 $ 24,400
The company's sales-volume variance is:
A. $3,000 unfavorable.
B. $4,000 unfavorable.
C. $4,400 favorable.
D. $10,000 unfavorable.
E. $10,000 favorable.

Answer 1

The sales-volume variance for Master Products is calculated by taking the difference between actual and budgeted units sold, multiplied by the contribution margin per unit, resulting in a $4,000 unfavorable variance.

Step-by-step explanation:

The student's question pertains to the calculation of the sales-volume variance, which measures the difference between the budgeted and actual sales in units sold, multiplied by the contribution margin per unit. To solve for the sales-volume variance, we can follow this formula:

Sales-Volume Variance = (Actual Units Sold - Budgeted Units Sold) x Contribution Margin Per Unit

In Master Products' case, we need to first find the contribution margin per unit from the provided budgeted data:

Contribution Margin Per Unit = Budgeted Contribution Margin / Budgeted Sales in Units

Contribution Margin Per Unit = $60,000 / 15,000 units = $4 per unit

Now we can calculate the sales-volume variance:

Sales-Volume Variance = (14,000 units - 15,000 units) x $4 per unit

Sales-Volume Variance = (1,000 units) x $4 per unit = $4,000

Because Master Products sold fewer units than budgeted, the variance is unfavorable. Hence, the correct answer is:

B. $4,000 unfavorable.