The next year\'s budget for Benny, Inc., is given below: Product 1 & 2 Sales $94

Question

The next year's budget for Benny, Inc., is given below:
                 

Product 1 & 2
                 

Sales $945,000 & 688500                 

Variable costs 459,900 & 297,000                 

Fixed costs 300,000 & 300,000                 

Net income $185,100 & $91,500                 

Units 126,000 & 54,000                 

Market share 12% & 20.0%

At the end of the year, the total fixed costs and the variable costs per unit were exactly as budgeted, but the following units                    per product line were sold:
                 

Product Line- Units- Sales- Mkt share                 

1- 126,200- $958,579- 16.0%                 

2- 56,800- $721,010- 14.2%

Required: (Be sure to                    indicate whether the variance is favorable or unfavorable.)
a. Compute the sales activity variance for                    each product.
b. Compute the market share variance for each product.
c. Compute the industry volume variance for each product.

Explanation / Answer

a. Compute the sales activity variance for each product.

For Product 1

i.e Sales variance = (AU x AP) - (BU x BP) = $958579 - $945000 = $13579 (Favorable)

Sales Price Variance = ( AP - BP) x AU = $958579 - 126200 x ($945,000 / 126,000) = $12079 (Favorable)

Sales Volume Variance = ( AU - BU) x BP = 200 x 7.5 = $1500 (Favorable)

For Product 2

Sales variance = (AU x AP) - (BU x BP) = $721,010 -688500  = $32510 (Favorable)

Sales Price Variance = ( AP - BP) x AU = $721,010 - 56,800 x ( 688500 / 54,000) = $3190 (Unfavorable)

Sales Volume Variance = ( AU - BU) x BP = 2800 x 7.5 = $35700 (Favorable)

b. Compute the market share variance for each product.

( Actual Market Share - Budgeted Market share) x Actual Industry sales x Avg Budgeted price/margin

Product 1 :

( 16 - 12) x ( $958,579 x 100/16) x $185,100 / $945,000

= $239644.75 x $185,100 / $945,000 = $46939.94 (favorable)

Product 2

( 14.2 - 20 ) x ($721,010 x 100 / 14.2) x $91,500 / 688500

= $294497.04 x $91,500 / 688500 = $39137.95 ( unfavorable)

c. Compute the industry volume variance for each product.

Product 1 :

( Actual Industry Sales - Budgeted Industry Sales) x Budgeted Market Share x Average Budgeted Margin

($958,579 x 100/16 - $945,000 x 100/12 ) x 12% x $185,100 / $945,000

= (5991118.75 - 7875000) x 12% x $185,100 / $945,000 = $44280.18 ( Unfavorable)

Product 2 :

( Actual Industry Sales - Budgeted Industry Sales) x Budgeted Market Share x Average Budgeted Margin

( $721,010 x 100/14.2 - 688500 x 100 / 20 ) x 20% x $91,500 / 688500

(5077535.2 - 3442500) x 20% x $91,500 / 688500 = 43458.45 ( Favorable)

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