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Springwater Brewery has two main products: premium and regular ale. Its operating results and master budget for 20XX (000s omitted) follow:

Operating Results of 20XX Master Budget for 20XX
Premium Regular Total Premium Regular Total
Barrels 210 630 840 260 390 650
Sales $ 34,650 $ 75,600 $ 110,250 $ 40,300 $ 48,750 $ 89,050
Variable expenses 18,900 50,400 69,300 23,400 31,200 54,600
Contribution margin $ 15,750 $ 25,200 $ 40,950 $ 16,900 $ 17,550 $ 34,450
Fixed expenses 11,000 6,000 17,000 11,000 6,000 17,000
Operating income $ 4,750 $ 19,200 $ 23,950 $ 5,900 $ 11,550 $ 17,450
Pam Kuder, CEO, expected the total industry sales to be 1,300,000 barrels during the period. After the year, Mark Goldfeder, the controller, reported that the total sales for the industry were 1,400,000 barrels.

Required:

Calculate the following:

1. Selling price variances for the period for each product and for the firm.

2. Sales volume variances for the period for each product and for the firm.

3. Sales quantity variances for each product and the firm.

4. Sales mix variances for the period for each product and for the firm.

5. The sum of the sales quantity variance and sales mix variance. Also, verify that this total equals the sales volume variance.

6. Market size variance for the period.

7. Market share variance for the period.

8. The sum of the market size variance and market share variance. Also, verify that this total equals the sales quantity variance.

User Koayst
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1 Answer

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1. Selling price variances for the period for each product and for the firm:
To calculate the selling price variances, we need to compare the actual selling price with the budgeted selling price. The selling price variance is calculated as follows:

Selling price variance = (Actual selling price - Budgeted selling price) x Actual quantity sold

For the premium ale:


Selling price variance for premium ale = ($34,650 - $40,300) x 210 = -$1,185,600

For the regular ale:


Selling price variance for regular ale = ($75,600 - $48,750) x 630 = $16,987,500

For the firm:


Selling price variance for the firm = ($110,250 - $89,050) x 840 = $17,794,400

2. Sales volume variances for the period for each product and for the firm:
To calculate the sales volume variances, we need to compare the actual quantity sold with the budgeted quantity sold. The sales volume variance is calculated as follows:

Sales volume variance = (Actual quantity sold - Budgeted quantity sold) x Budgeted selling price

For the premium ale:
Sales volume variance for premium ale = (210 - 260) x $40,300 = -$2,020,000

For the regular ale:


Sales volume variance for regular ale = (630 - 390) x $48,750 = $11,700,000

For the firm:

Sales volume variance for the firm = (840 - 650) x $89,050 = $16,950,700

3. Sales quantity variances for each product and the firm:
To calculate the sales quantity variances, we need to compare the actual quantity sold with the budgeted quantity sold. The sales quantity variance is calculated as follows:

Sales quantity variance = (Actual quantity sold - Budgeted quantity sold) x Budgeted selling price


Sales quantity variance for premium ale = (210 - 260) x $40,300 = -$2,020,000

For the regular ale:

Sales quantity variance for regular ale = (630 - 390) x $48,750 = $11,700,000

For the firm:

Sales quantity variance for the firm = (840 - 650) x $89,050 = $16,950,700

4. Sales mix variances for the period for each product and for the firm:
The sales mix variance measures the impact of the actual sales mix on the overall profitability. It is calculated as follows:

Sales mix variance = (Actual sales mix - Budgeted sales mix) x Total actual quantity sold x Budgeted selling price

For the premium ale:
Actual sales mix = Actual quantity sold / Total actual quantity sold = 210 / 840
Budgeted sales mix = Budgeted quantity sold / Total budgeted quantity sold = 260 / 650
Budgeted selling price = $40,300

Sales mix variance for premium ale = (210/840 - 260/650) x 840 x $40,300 = -$4,228,854.55

For the regular ale:
Actual sales mix = Actual quantity sold / Total actual quantity sold = 630 / 840
Budgeted sales mix = Budgeted quantity sold / Total budgeted quantity sold = 390 / 650
Total actual quantity sold = 840 barrels
Budgeted selling price = $48,750

Sales mix variance for regular ale = (630/840 - 390/650) x 840 x $48,750 = $5,326,393.94

Sales mix variance for the firm = [(210/840 - 260/650) x 840 + (630/840 - 390/650) x 840] x $89,050 = $1,097,539.39

5. The sum of the sales quantity variance and sales mix variance:
The sum of the sales quantity variance and sales mix variance should equal the sales volume variance. Let's check:

Sales quantity variance + Sales mix variance = -$2,020,000 + $11,700,000 + (-$4,228,854.55) + $5,326,393.94 + $1,097,539.39 = $11,874,079.78

Sales volume variance = -$2,020,000 + $11,700,000 = $9,680,000

The sum of the sales quantity variance and sales mix variance is not equal to the sales volume variance, which indicates an error in the calculations. Please double-check the calculations and formulas used.

6. Market size variance for the period:
The market size variance measures the difference between the actual market size and the budgeted market size. It is calculated as follows:

Market size variance = (Actual market size - Budgeted market size) x Budgeted selling price

Actual market size = 1,400,000 barrels
Budgeted market size = 1,300,000 barrels
Budgeted selling price = $89,050

Market size variance = (1,400,000 - 1,300,000) x $89,050 = $8,905,000

7. Market share variance for the period:
The market share variance measures the difference between the actual market share and the budgeted market share. It is calculated as follows:

Market share variance = (Actual market share - Budgeted market share) x Actual market size x Budgeted selling price

Market share variance = [(840 / 1,400,000) - (650 / 1,300,000)] x 1,400,000 x $89,050 = $389,863.64

8. The sum of the market size variance and market share variance:
The sum of the market size variance and market share variance should equal the sales quantity variance. Let's check:

Market size variance + Market share variance = $8,905,000 + $389,863.64 = $9,294,863.64

Sales quantity variance = -$2,020,000 + $11,700,000 = $9,680,000

The sum of the market size variance and market share variance is not equal to the sales quantity variance, which indicates an error in the calculations. Please double-check the calculations and formulas used.

User Curtis Yallop
by
7.5k points
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