Question

Hamilton Bay produces a single product. The budget going into the current year anticipated a selling price of $30 per unit. Because of competitive pressures, the company had to cut selling prices by 5% during the year. Budgeted variable costs per unit are $15, and budgeted fixed costs are $100,000 for the year. Anticipated sales volume was 5,000 units. Actual sales volume was 5% more than budgeted. What was the sales price variance for the year

Answer 1

$7,875 unfavorable

Step-by-step explanation:

sales price variance = actual sales units x (budgeted price - actual price)

• budgeted price = $30 per unit
• actual price = $30 x 95% = $28.50 per unit
• actual sales units = 5,000 units x 105% = 5,250 units

sales price variance = 5,250 units x ($30 - $28.50) = $7,875 unfavorable*

*When the variance is a negative number, it is considered favorable variance because actual income was higher than budgeted income. In this case the number is positive (unfavorable variance) because the selling price was lower than the budgeted price.