Aromatic Coffee, Inc., sells two types of coffee, Colombian and Blue Mountain. T

Question

Aromatic Coffee, Inc., sells two types of coffee, Colombian and Blue Mountain. The monthly budget for U.S. coffee sales is based on a combination of last year's performance, a forecast of industry sales, and the company's expected share of the U.S. market. The following information is provided for March:

                                                 Actual                                  Budget

                                 Colombian Blue Mountain    Colombian   Blue Mountain

Sales in pounds        7,000 lbs.       8,000 lbs.        6,400 lbs.         8,600 lbs

Price per pound                 $25                 $30                 $25                 $30

Variable cost per pound       11                   14                   12                   13

Contribution margin           $14                 $16                 $13                 $17

Budgeted and actual fixed corporate-sustaining costs are $60,000 and $72,000, respectively.

Required:

Determine the total static-budget variance, the total flexible-budget variance, and the total sales-volume variance in terms of the contribution margin.

Explanation / Answer

total static-budget variance Actual Standrad Variance Colombian Sales in pounds (7000*25) 175000 160000 15000 Favorable (variable cost)(7000*11) 77000 81600 -4600 Favorable Contribution Margin(7000*14) 98000 88400 9600 Favorable (Fixed cost) 60000 72000 -12000 Favorable EBIT 38000 16400 21600 Favorable Actual Standrad Variance Blue Moutains Sales in pounds (8000*30) 240000 258000 -18000 Unfavorable (variable cost)(8000*14) 112000 111800 200 Unfavorable Contribution Margin(8000*16) 128000 146200 -18200 Unfavorable (Fixed cost) 60000 72000 -12000 Unfavorable EBIT 68000 74200 -6200 Unfavorable Total static Budget Varinace Sales in pounds (8000*30) -3000 Unfavorable (variable cost)(8000*14) -4400 F Contribution Margin(8000*16) -8600 F (Fixed cost) -24000 Favorable EBIT 15400 Favorable 0 Flexible budget variance colombian Actual Flexible budget variance flexible budget sales voloume variance Static budget Voloume 7000 0 7000 600 6400 Revenue 175000 0 175000 15000 160000 variable cost 77000 0 77000 4600 81600 contribution margin 98000 0 98000 9600 88400 fixed cost 60000 0 60000 -12000 72000 EBIT 38000 0 38000 21600 16400 Flexible budget variance blue mountains Actual Flexible budget variance flexible budget sales voloume variance Static budget Voloume 8000 0 8000 600 8600 Revenue 240000 0 240000 15000 258000 variable cost 112000 0 112000 -200 111800 contribution margin 136000 0 136000 -10200 146200 fixed cost 60000 0 60000 -12000 72000 EBIT 76000 0 76000 1800 74200 Sales voloume variance for colombia -21800 Sales voloume variance for blue mountains -1800 Flexible budget variance for colmbia 38000-38000 = 0 Flexible budget variance for blue mountains 76000- 76000 =0 Total static budget variance for colombia -21800 Total static budget variance for blue mountains -1800

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