Exercise 18.20 Pricing Strategy, Sales Variances Eastman, Inc., manufactures and
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Question
Exercise 18.20
Pricing Strategy, Sales Variances
Eastman, Inc., manufactures and sells three products: R, S, and T. In January, Eastman, Inc., budgeted sales of the following.
At the end of the year, actual sales revenue for Product R and Product S was $3,075,000 and $3,254,000, respectively. The actual price charged for Product R was $25 and for Product S was $20. Only $10 was charged for Product T to encourage more consumers to buy it, and actual sales revenue equaled $540,000 for this product.
Required:
1. Calculate the sales price and sales volume variances for each of the three products based on the original budget.
2. Suppose that Product T is a new product just introduced during the year. What pricing strategy is Eastman, Inc., following for this product?
- Select your answer -Penetration pricing strategyTarget cost-based pricing strategyItem 13
Exercise 18.20
Pricing Strategy, Sales Variances
Eastman, Inc., manufactures and sells three products: R, S, and T. In January, Eastman, Inc., budgeted sales of the following.
At the end of the year, actual sales revenue for Product R and Product S was $3,075,000 and $3,254,000, respectively. The actual price charged for Product R was $25 and for Product S was $20. Only $10 was charged for Product T to encourage more consumers to buy it, and actual sales revenue equaled $540,000 for this product.
Required:
1. Calculate the sales price and sales volume variances for each of the three products based on the original budget.
Sales Price Variance Sales Volume Variance Product R $ - Select your answer -FavorableUnfavorableItem 2 $ - Select your answer -FavorableUnfavorableItem 4 Product S $ - Select your answer -FavorableUnfavorableItem 6 $ - Select your answer -FavorableUnfavorableItem 8 Product T $ - Select your answer -FavorableUnfavorableItem 10 $ - Select your answer -FavorableUnfavorableItem 122. Suppose that Product T is a new product just introduced during the year. What pricing strategy is Eastman, Inc., following for this product?
- Select your answer -Penetration pricing strategyTarget cost-based pricing strategyItem 13
Explanation / Answer
Solution:
Sales price varianc means the difference between the xpected revenue and actual revenu from the sale of a product due to the change in the sales price.
(Actual price - Budgeted price) * units sold = Sales price variance
Product R - Actual sold units:
$3,075,000 / $25 = 123,000 units
Product S Actual sold units:
$3,254,000 / $20 = 162,700 units
Product T sold units:
$540,000 / $10 = 54,000 units
SPV Product R = ($25-$26) * 123,000 units = $(123,000)
Sales Volume Variance : All are favorable
(Actual units sold - Budgeted units sold) * Budgeted price per unit
Product R SVV = (123,000 - 120,000) * $26 = $78,000
2. Penetration pricing strategy is most favorable for a newly launched product for generating fast sales. In this strategy the price of the product is kept low for market penetration and slowly as the sales increases the price will be increased.
Budgeted Volume Actual volume Budgeted Price Actual price SPV SVV Product R 120,000 123,000 $26 $25 $(123,000) $78,000 Product S 150,000 162,700 $22 $20 $(325,400) $279,400 Product T 20,000 54,000 $20 $10 $(540,000) $680,000Related Questions
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