The Italia\'s Ice Cream operates a chain of Italian gelato stores. Although the

ID: 2516213 • Letter: T

Question

The Italia's Ice Cream operates a chain of Italian gelato stores. Although the Italia's Ice Cream charges customers the same price for all flavors, production costs vary, depending on the type of ingredients. Budgeted and actual operating data of its Washington, D.C., store for August 2014 are as follows Budget for August 2014 SP/Pint VC/Pint Sales Volume (in pints) 35,000 45,000 20,000 100,000 CM/Pint Mint Chocolate Chip Vanilla Rum Raisin 9.004.80 4.20 9.00 $3.20$ 5.80 9.00$5.00 4.00 Actual for August 2014 Mint Chocolate Chip Vanilla Rum Raisin SP/Pint VC/Pint CM/Pint Sales Volume (in pints) 33,750 56,250 22,500 112,500 9.00$4.60 4.40 9.00$3.25 5.75 9.00 $5.15$ 3.85 The Italia's Ice Cream focuses on contribution margin in its variance analysis. Required 1. Compute the total sales-volume variance for August 2014: ANSWER 2. Compute the total sales-mix variance for August 2014: ANSWER 3. Compute the total sales-quantity variance for August 2014: ANSWER

Explanation / Answer

1. TOTAL SALES-VOLUME VARIANCE FOR AUGUST 2014

Sales Volume Variance = (Actual units sold - Budgeted units sold) x Budgeted Contribution price per unit

Mint Chocolate Chip = (33750 - 35000) x $ 4.20 = $ 5,250 (Adverse)

Vanilla = (56250 - 45000) x $ 5.80 = $ 65,250 (Favorable)

Rum Raisin = (22500 - 20000) x $ 4.00 = $ 10,000 (Favourable)

Total Sales Volume Variance = $ 5,250 (A) + $ 65,250 (F) + $ 10,000 (F) = $ 70,000

2. TOTAL SALES-MIX VARIANCE FOR AUGUST 2014

Step 1: Calculate the standard mix ratio

Standard mix ratio : 35% Mint chocolate chip*, 45% Vanilla** and 20% Rum raisin***

* 35000/100000 = 35%

** 45000/100000 = 45%

*** 20000/100000 = 20%

Step 2: Calculate the sales quantities in proportion to the standard mix

Total sales during the period = 112,500

Unit Sales at Standard Mix:

Sales of Mint chocolate chip in standard mix @ 35% of 112,500 = 39,375 units

Sales of Vanilla in standard mix @ 45% of 112,500 = 50,625 units

Sales of Rum raisin in standard mix @ 20% of 112,500 = 22,500 units

Step 3: Calculate the difference between actual sales quantities and the sales quantities in standard mix

Step 4: Calculate the standard contribution per unit

Mint Chocolate Chip = $ 4.20

Vanilla = $ 5.80

Rum raisin = $ 4.00

Step 5: Calculate the variance for each product

Step 6: Add the individual variances

Sales Mix Variance = $ 23,625 (A) + $ 32,625 (F)

= $ 9,000 Favourable

3. TOTAL SALES-QUANTITY VARIANCE FOR AUGUST 2014