Price Volume Mix Calculation Analysis - Excel

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```					Exercise 14-34
Given:
Debbie's Delight, Inc., operates a chain of cookie stores. Budgeted and
actual operating data of its three Chicago stores for August 2009 are as
follows:

Budget for August 2009
Selling Price     Variable Cost         CM           Sales Volume      Budgeted          Budgeted
per pound         per pound         per pound        in pounds        Sales Mix            TCM
Chocolate chip                   4.50               2.50              2.00           45,000             0.45           90,000
Oatmeal raisin                   5.00               2.70              2.30           25,000             0.25           57,500
Coconut                          5.50               2.90              2.60           10,000             0.10           26,000
White chocolate                  6.00               3.00              3.00             5,000            0.05           15,000
Macadamia nut                    6.50               3.40              3.10           15,000             0.15           46,500
Total                                                                            100,000             1.00          235,000
Budgeted W/A CM per unit                   \$2.35
Actual for August 2009
Selling Price     Variable Cost         CM           Sales Volume       Actual
per pound         per pound         per pound        in pounds        Sales Mix
Chocolate chip                   4.50               2.60              1.90           57,600             0.48
Oatmeal raisin                   5.20               2.90              2.30           18,000             0.15
Coconut                          5.50               2.80              2.70             9,600            0.08
White chocolate                  6.00               3.40              2.60           13,200             0.11
Macadamia nut                    7.00               4.00              3.00           21,600             0.18
120,000             1.00
Debbie's Delight focuses on CM in its variance analysis.

Required:
1. Compute the total sales-volume variance for August 2009.
2. Compute the total sales-mix variance for August 2009.
3. Compute the total sales-quantity variance for August 2009.

Actual Quantity Sold                       Sales                      Actual Quantity Sold
Actual Sales Mix                        CM                           Actual Sales Mix
Actual CM per Unit                     Variance                  Budgeted CM per Unit
Chocolate chip              120,000 X .48 X \$1.90 =             \$109,440            (\$5,760)     120,000 X .48 X \$2.00 =
Oatmeal raisin              120,000 X .15 X \$2.30 =              \$41,400                   \$0    120,000 X .15 X \$2.30 =
Coconut                     120,000 X .08 X \$2.70 =              \$25,920               \$960      120,000 X .08 X \$2.60 =
White chocolate             120,000 X .11 X \$2.60 =              \$34,320            (\$5,280)     120,000 X .11 X \$3.00 =
Macadamia nut               120,000 X .18 X \$3.00 =              \$64,800            (\$2,160)     120,000 X .18 X \$3.10 =
\$275,880           (\$12,240)
\$2.30         Sales
CM            (SP - VC)
Variance
Unfavorable

4. Comment on your results in requirements 1, 2, 3.
Debbie's Delight shows a favorable sales-quantity variance because it sold more cookies in total (120,000#'s)
than was budgeted (100,000#'s).

Together with the higher quantities, Debbie's also sold more of the high-contribution margin white chocolate
and macadamia nut cookies relative to the budgeted mix -- hence, Debbie's also showed a favorable total
sales-mix variances.              (\$2.40 - \$2.35)

The Sales CM Variance which is unfavorable reflects the fact that differences in sales price and variable cost
from budgeted values decreased income by \$12,240.

Exercise 14-35
Given:
Debbie's Delight expects to attains a 10% market share based on total sales of the Chicago market. The total Chicago
market is expected to be 1,000,000 pounds in sales volume for August 2009. The actual total Chicago market for
August 2009 was 960,000 pounds in sales volume.
Required:
Compute the market-share and market-size variances for Debbie's Delight in August 2009. Report all
variances in CM terms. Comment on the results.

Actual Market Size              Market                Actual Market Size
Actual Market Share               Share              Budgeted Market Share
Budgeted Average CM per Unit          Variance         Budgeted Average CM per Unit

960,000 X .125 X \$2.35                                960,000 X .10 X 2.35
\$282,000                      \$56,400                 \$225,600
Market-Share
Actual Market Share                       Variance
(120,000/960,000) = .125                  Favorable
0.125
Sales-Quantity Variance
\$47,000
\$47,000
Favorable
By increasing its actual market share from the 10% budgeted to the actual
12.5%, Debbie's Delight has a favorable market-share variance of \$56,400.

There is a smaller offsetting unfavorable market-size variance of \$9,400 due
to the 40,000 unit decline in the Chicago market (from 1,000,000 budgeted
to an actual of 960,000).

Overview of 14-34 and 14-35:                       \$53,120
Sales-Volume Variance
\$53,120 F

Sales-Mix Variance                                   Sales-Quantity Variance
\$6,120 F                                              \$47,000 F

Market-Share Variance                   Market-Size Varianc
\$56,400 F
Static Budget
ual Quantity Sold                Sales               Actual Quantity Sold               Sales             Budget Quantity Sold
ctual Sales Mix                  Mix                  Budgeted Sales Mix               Quantity            Budgeted Sales Mix
geted CM per Unit              Variance             Budgeted CM per Unit               Variance           Budgeted CM per Unit
\$115,200       \$7,200    120,000 X .45 X \$2.00 =        \$108,000     \$18,000   100,000 X .45 X \$2.00 =
\$41,400     (\$27,600)   120,000 X .25 X \$2.30 =         \$69,000     \$11,500   100,000 X .25 X \$2.30 =
\$24,960      (\$6,240)   120,000 X .10 X \$2.60 =         \$31,200      \$5,200   100,000 X .10 X \$2.60 =
\$39,600      \$21,600    120,000 X .05 X \$3.00 =         \$18,000      \$3,000   100,000 X .05 X \$3.00 =
\$66,960      \$11,160    120,000 X .15 X \$3.10 =         \$55,800      \$9,300   100,000 X .15 X \$3.10 =
\$288,120       \$6,120                                   \$282,000     \$47,000
\$2.40     Sales                                         \$2.35    Sales
Mix                                                   Quantity
Variance                                                Variance
Favorable                                               Favorable
Sales-Volume Variance
\$53,120
\$53,120
Favorable
es in total (120,000#'s)

margin white chocolate
ed a favorable total

rice and variable cost

o market. The total Chicago
tal Chicago market for

Static Budget
tual Market Size              Market         Budgeted Market Size
eted Market Share              Size         Budgeted Market Share
d Average CM per Unit        Variance    Budgeted Average CM per Unit

000 X .10 X 2.35                           1,000,000 X .10 X \$2.35
(\$9,400)            \$235,000
Market-Size
Variance            Budgeted Market Share
Unfavorable          (100,000/1,000,000) = .10
0.10
Quantity Variance

Market-Size Variance
\$9,400 U
dget Quantity Sold
dgeted Sales Mix
geted CM per Unit
\$90,000
\$57,500
\$26,000
\$15,000
\$46,500
\$235,000
\$2.35
Exercise 14-37
Given:
PDS Manufacturing makes wooden furniture. One of their products is a wooden dresser. The exterior and some of the
shelves are made of oak, a high quality wood, but the interior drawers are made of pine, a less expensive wood. The
budgeted direct materials quantities and prices for one dresser are:

Price Per    Cost For
Quantity     Budgeted       Unit of       One
Type of Wood         Board Feet      Mix          Input      Dresser
Oak                       8      0.40         \$6.00         \$48
Pine                     12      0.60          2.00          24
Total                    20                                 \$72            \$3.60

That is, each dresser is budgeted to use 20 board feet of wood, comprised of 40% oak and 60% pine, although
sometimes more pine is used in place of oak with no obvious change in the quality or function of the dresser.

During the month of May, PDS manufactures 3,000 dressers. Actual direct materials costs are:

Board Feet    Actual Mix Actual Cost Per Unit Cost
Oak           23,180       0.38     \$141,398      \$6.10
Pine          37,820       0.62       \$68,076     \$1.80
61,000                \$209,474
Required:
1. What is the budgeted cost of direct materials for 3,000 dressers?

3,000 X 20 X \$3.60 = \$216,000                      60,000

2. Calculate the total direct materials price and efficiency variances.

See below.          DM Price Variance             (\$5,246) Favorable
DM Efficiency Variance        (\$1,280) Favorable

3. For the 3,000 dressers, what is the total actual amount of oak and pine used?

See below.              61,000

What is the actual DM input mix percentage?

Board Feet    Actual Mix Actual Cost
Oak           23,180           0.38 \$141,398
Pine          37,820           0.62   \$68,076
61,000                \$209,474

What is the budgeted amount of oak and pine that should have been used for the 3,000 dressers?

Oak       3,000 X 20 X .40 =                24,000
Pine      3,000 X 20 X .60 =                36,000
60,000

4. Calculate the total direct materials mix and yield variances. How do these numbers relate to the
total direct materials eficiency variance? What do these variances tell you?
Actual Quantity                                      Actual Quantity
Actual Mix                  Price                   Actual Mix
Actual Price               Variance                Budgeted Price
Oak           61,000 X .38 X \$6.10 =      \$141,398       \$2,318     61,000 X .38 X \$6 =
Pine          61,000 X .62 X \$1.80 =       \$68,076        (7,564)   61,000 X .62 X \$2 =
\$209,474       (\$5,246)
Price
Favorable

Price Variance:    The net \$5,246 favorable price variance results from a decrease in the price per board
foot of pine of sufficient magnitude to offset and unfavorable price increase per board
foot of oak.

Mix Variance:      The favorable mix variance arises from using more of the cheaper pine (and less oak)
than the budgeted mix.

Yield Variance:    The yield variance indicates that the dressers required more total inputs (61,000 b.f.)
than expected (60,000 b.f.) for the production of 3,000 dressers.

Both variances are relatively small and probably within tolerable limits.

PDS should investigate whether substituting the cheaper pine for the more expensive oak caused the
unfavorable yield variance.

PDS should also be careful that using more of the cheaper pine does not reduce the quality of the dresser
or how the customers perceive it.
e exterior and some of the
ss expensive wood. The

0% pine, although
n of the dresser.

000 dressers?

relate to the
ctual Quantity                                      Actual Quantity                                               Budgeted Quantity
Actual Mix                    Mix                   Budgeted Mix                          Yield                    Budgeted Mix
udgeted Price                Variance               Budgeted Price                       Variance                  Budgeted Price
\$139,080       (\$7,320)   61,000 X .40 X \$6 =           \$146,400             \$2,400      60,000 X .40 X \$6 =
\$75,640        2,440     61,000 X .60 X \$2 =            \$73,200                 1,200   60,000 X .60 X \$2 =
\$214,720       (\$4,880)                                 \$219,600             \$3,600
Mix                                                         Yield
Variance                   (\$1,280)                       Unfavorable
(\$4,880)                  Efficiency                         \$3,600
Favorable                 Favorable
(\$1,280)
in the price per board
ice increase per board                                              Alternative Calculation of Yield Variance
20.3333333     Actual BF of input per dresser produced
20.0000000     Budgeted BF of input per dresser produced
er pine (and less oak)                                                 0.3333333     Extra BF of input per dresser produced
\$3.60    W/A budgeted cost per BF of input
\$1.2000000     Extra cost per dresser produced
al inputs (61,000 b.f.)                                                     3,000    Dressers produced
\$3,600    Unfavorable Yield Variance

Alternative Calculation of Yield Variance
0.0500000     Budgeted: Dressers per BF of input
ive oak caused the                                                     0.0491803     Actual: Dressers per BF of input
0.0008197     Decreased dressers per BF of input
\$72    W/A budgeted cost per dresser
e quality of the dresser                                              \$0.0590164     Extra cost per BF of input
61,000    BF of input
\$3,600    Unfavorable Yield Variance
udgeted Quantity
Budgeted Mix
Budgeted Price
\$144,000
72,000
\$216,000
Exercise 14-19
Given:
Lenzig Corporation has three divisions: Fibers, Paper, and Pulp. Lenzig's new controller, Ari
Bardem, is reviewing the allocation of fixed corporate-overhead costs to the three divisions.
He is presented with the following information for each division for 2009:

Pulp         Paper           Fibers            Total
Revenue                                \$8,500,000    \$17,500,000     \$24,000,000      \$50,000,000
Direct manufacturing costs              4,100,000      8,600,000      11,300,000       24,000,000
Divisional administrative costs         2,000,000      1,800,000       3,200,000        7,000,000
Division margin                        \$2,400,000     \$7,100,000      \$9,500,000      \$19,000,000

Number of employees                           350             250             400              1,000
Floor space (square feet)                  35,000          24,000          66,000            125,000

Until now, Lenzig Corporation has allocated fixed corporate-overhead costs to the divisions on the
bases of division margins. Bardem asks for a list of costs that comprise fixed corporate overhead
and suggests the following new allocation bases:

Fixed Corporate Overhead Cost Category                 Costs        Suggested Allocation Bases
Human resource management costs                       \$1,800,000    Number of employees
Facility costs                                         2,700,000    Floor space (square feet)
Total Fixed Indirect Overhead Costs                \$9,000,000

Required:
1. Allocate 2009 fixed corporate-overhead costs to the 3 divisions using division margin as
the allocation base. What is each division's operating margin % (division margin minus
fixed corporate-overhead costs as a percentage of revenue)?

Pulp         Paper            Fibers           Total
Allocated corporate-overhead costs     \$1,136,842     \$3,363,158       \$4,500,000      \$9,000,000

Pulp         Paper           Fibers        Total
Division margin                        \$2,400,000    \$7,100,000      \$9,500,000   \$19,000,000
Allocated corporate-overhead costs      1,136,842      3,363,158       4,500,000     9,000,000
Division operating margin              \$1,263,158    \$3,736,842      \$5,000,000   \$10,000,000
Division operating margin percentage        14.86%        21.35%           20.83%       20.00%

2. Allocate 2009 fixed costs using the allocation bases suggested by Bardem. What is
each division's operating margin percentage under the new allocation scheme?

Pulp         Paper            Fibers           Total
Human resource mgmt. costs               \$630,000       \$450,000         \$720,000      \$1,800,000
Facility costs                            756,000        518,400        1,425,600       2,700,000
Corporate administrative costs          1,285,714      1,157,143        2,057,143       4,500,000
Total Indirect FOH Costs            \$2,671,714     \$2,125,543       \$4,202,743      \$9,000,000

Pulp         Paper           Fibers           Total
Division margin                        \$2,400,000    \$7,100,000      \$9,500,000      \$19,000,000
Allocated corporate-overhead costs      2,671,714      2,125,543       4,202,743        9,000,000
Division operating margin              (\$271,714)    \$4,974,457      \$5,297,257  \$10,000,000
Division operating margin percentage       -3.20%         28.43%          22.07%       20.00%

3. Compare and discuss the results of requirements 1 and 2. If division performance is
linked to operating margin %, which division would be most receptive to the new
allocation scheme? Which division would be the least receptive? Why?

When corporate overhead is allocated to the divisions on the basis of division margins
(requirement 1), each division appears profitable each having positive operating margin.
The Paper division appears the most profitable having the highest operating margin % while
the Pulp division appears least profitable.

When Bardem's suggested bases are used to allocate fixed corporate-overhead costs
(requirement 2), the Pulp division appears unprofitable having a negative operating %.
Paper appears to be the most profitable -- significantly more profitable than the Fibers
division.

4. Which allocation scheme should Lenzig Corporation use? Why? How might Bardem
overcome any objections that may arise from the divisions?

The new approach is preferable because the indirect FOH costs are divided into three
homogeneous cost pools with distinctive cost drivers. These drivers are used to allocate
the cost pool costs based on cause-and-effect relationships. The old method used division
margins which are the result of cost relationships not the cause of them.

The cost drivers used are based on logical cause and effect relationships. For example:

a. HR costs are allocated using the number of employees in each division because the
costs for recruitment, training, etc., are mostly related to the number of employees
in each division.

b. Facility costs are mostly incurred on the basis of space occupied by each division.

c. Corporate administrative costs are allocated on the basis of divisional administrative
costs because these costs are incurred to provide support to divisional administrations.

To overcome objections from the divisions, Bardem may initially choose not to allocate
corporate overhead to divisions when evaluating performance. He could start by sharing
the results with the divisions, and giving them—particularly the Pulp division—adequate
time to figure out how to reduce their share of cost drivers. He should also develop
benchmarks by comparing the consumption of corporate resources to competitors and
other industry standards.
Exercise 14-22
Given:
Figure Four is a distributor of pharmaceutical products. Its ABC system has 5 activities.

Activity Area:             Cost Driver Rate in 2006
Order processing                \$40 per order
Line-item ordering               \$3 per line item
Store deliveries                \$50 per store delivery
Carton deliveries                \$1 per carton
Shelf-stocking                  \$16 per stocking-hour

Rick Flair, the controller of Figure Four, wants to use this ABC system to examine
individual customer profitability within each distribution market. He focuses first on
the Ma and Pa single-store distribution market. Two customers are used to exemplify
the insights available with the ABC approach. Data pertaining to these two customers
in August 2009 are as follows:
Charleston      Chapel Hill
Pharmacy        Pharmacy
Total orders                                                          13                10
Average line items per order                                           9                18
Total store deliveries                                                 7                10
Average cartons shipped per store delivery                            22                20
Average hours of shelf stocking/store delivery                         0               0.5
Average revenue per delivery                                      \$2,400           \$1,800
Average cost of goods sold per delivery                           \$2,100           \$1,650

Required:
1. Use the ABC information to compute the operating income of each customer
in August 2009. Comment on the results and what, if anything, Flair should do.

Charleston      Chapel Hill
Pharmacy        Pharmacy
Revenue                                                         \$16,800         \$18,000
Less Cost of Goods Sold                                           14,700          16,500
Gross Profit                                                     \$2,100          \$1,500
Less Operating Costs    Driver Rate
Order processing            \$40     per order                    \$520            \$400
Line-item ordering           \$3     per line item                 351             540
Store deliveries            \$50     per store delivery            350             500
Carton deliveries            \$1     per carton                    154             200
Shelf-stocking              \$16     per stocking-hour               0              80
Total Operating Costs                                       \$1,375          \$1,720
Operating Income                                                    \$725           (\$220)

Chapel Hill Pharmacy has a lower gross margin % than Charleston and
it consumes more resources to obtain this lower margin.

Gross Margin        Revenue           GM%
Charleston Gross Margin %                     \$2,100          \$16,800        12.500%
Chapel Hill Gross Margin %                    \$1,500          \$18,000         8.333%
2. Flair ranks the individual customers in the Ma and Pa single-store
distribution market on the basis of monthly operating income.
The cumulative operating income of the top 20% of customers is \$55,680.
Figure Four reports negative operating income of \$21,247 for the bottom
40% of its customers.

Make four recommendations that you think Figure Four should consider
in light of this new customer-profitability information.

1.   Pay increased attention to profitable customers -- don’t want to loose them
2.   Reduce the activity cost driver rates -- make value-added activities more efficient
3.   Reduce or eliminate non-value added activities
4.   Eliminate unprofitable customers who cannot be made profitable
5.   Pay bonuses based on customer operating income.
Exercise 14-31
Given:
Sherriton's loyalty program consists of three different customer loyalty levels.

Bronze Card
Available to all new customers.
Complimentary bottle of wine/night                             \$5 cost to company
\$20 Restaurant coupons/night                                  \$10 cost to company
10% discount off the nightly rate                             10% nightly discount
After 20 night's "stay and pay"
Complimentary bottle of wine/night                             \$5 cost to company
\$30 Restaurant coupons/night                                  \$15 cost to company
20% discount off the nightly rate                             20% nightly discount
After 50 night's "stay and pay"
Complimentary bottle of champagne/night                       \$20 cost to company
\$40 Restaurant coupons/night                                  \$20 cost to company
30% discount off the nightly rate                             30% nightly discount

The average full price for one night's stay                         \$200
Other variable cost per night stayed                                 \$65
Total fixed costs for the chain are                         \$140,580,000
Sherriton operates:                                                    10     hotels
500     rooms per hotel
365     days per year
80%      average occupancy rate
Loyalty program characteristics:
Customer Type      # of Customers    Average # of Nights
Gold                           2,430                    60
Silver                         8,340                    35
Bronze                       80,300                     10
No Program                  219,000                      1
Required:
1. Calculate the program CM for each of the customer types. Which is most
profitable? Which is the least profitable? Do not allocate fixed costs to
individual rooms or specific loyalty programs.

2. Prepare an income statement for Sherriton for the year ended 12/31/2006?

Gold
Revenues
1st 20 nights                     \$8,748,000
21st to 50th night                11,664,000
51st to 60th night                 3,402,000     \$23,814,000
Variable Costs
VC of hotel room                  \$9,477,000
Wine                                 607,500
Champagne                            486,000
Restaurant costs
1st 20 nights                    486,000
21st to 50th night             1,093,500
51st to 60th night       486,000      12,636,000
Contribution margin                           \$11,178,000

Silver
Revenues
1st 20 nights             \$30,024,000
21st to 35th night         20,016,000    \$50,040,000
Variable Costs
VC of hotel room          \$18,973,500
Wine                        1,459,500
Restaurant costs
1st 20 nights          1,668,000
21st to 35th night     1,876,500     23,977,500
Contribution margin                          \$26,062,500

Bronze
Revenues
1st 10 nights                            \$144,540,000
Variable Costs
VC of hotel room           \$52,195,000
Wine                         4,015,000
Restaurant costs             8,030,000     64,240,000
Contribution margin                           \$80,300,000

No Program
Revenues                                      \$43,800,000
VC of Hotel room                               14,235,000
Contribution margin                           \$29,565,000

Summary                              Gold           Silver        Bronze        No Program
Revenue                         \$23,814,000    \$50,040,000    \$144,540,000   \$43,800,000
Variable Costs                   12,636,000     23,977,500      64,240,000    14,235,000
Contribution margin             \$11,178,000    \$26,062,500     \$80,300,000   \$29,565,000
Fixed Costs
Operating Income
Contribution margin %           46.939%        52.083%         55.556%        67.500%
Lowest                                        Highest

3. What is the average room rate per night? What are the average VC per night
inclusive of the loyalty program?
Total nights
Gold                              145,800
Silver                            291,900
Bronze                            803,000
No program                        219,000
Total                      1,459,700
Total revenues                   \$262,194,000
Average room rate per night           \$179.62
Total variable costs             \$115,088,500
Average VC per night                   \$78.84
4. Explain what drives the profitability (or lack thereof) of Sherriton's loyalty
program.

Loyalty programs aim to generate profitable repeat business.
Given the low level of variable costs to room rates, there is considerable
cushion available for Sherriton to offer high inducements for frequent stayers.

5. Does it appear that Sherriton's loyalty program is working?

Sherriton operates:                                               10   hotels
500   rooms per hotel
365   days per year
80%    average occupancy rate
Loyalty program characteristics:
Customer Type    # of Customers    Average # of Nights   Total Rentals
Gold                        2,430                    60       145,800
Silver                      8,340                    35       291,900
Bronze                     80,300                    10       803,000
No Program                219,000                     1       219,000
1,459,700
Pre-Plan           Post-Plan
Total rooms available for rent                          1,825,000            1,825,000
Rooms rented                                            1,460,000            1,459,700
Average occupancy rate                                    0.80000              0.79984
Average CM per rental                                        \$135              \$100.78
Total CM                                             \$197,100,000         \$147,105,500
Decrease in TCM post-plan                                                  \$49,994,500

No!

1. Was there a change in the industry market size? More travel? Fewer/More available rooms?
2. What extra revenue was generated because of the restaurant coupons.
3. A loyalty plan might work well for some hotels or geographical areas but not in others.
Total
\$262,194,000
115,088,500
\$147,105,500
140,580,000
\$6,525,500
2
Exercise 14-37
Given:
Greenwood, Inc., processes apples into applesauce and apple butter. Greenwood's applesauce is made with a blend
of Tolman, Golden Delicious, and Ribston apples. Budgeted and actual costs to produce 150,000 pounds of applesauce
in November 2006 are as follows:

Actual                                                   Flexible
Quantity         Actual        Actual       Actual       Budgeted       Budgeted
Applesauce           (Pounds)          Mix          Price         Cost        Quantity         Mix
Tohlman                72,000             0.20        \$0.35      \$25,200         52,500            0.15
Golden Delicious      180,000             0.50        \$0.29       52,200        210,000            0.60
Ribston               108,000             0.30        \$0.22       23,760         87,500            0.25
Total                 360,000             1.00                  \$101,160        350,000            1.00
Required:
1. Calculate the total DM price and efficiency variance for November 2006.
2. Calculate the total direct materials mix and yield variances for November 2006.
3. Comment on your results in requirement 1 and 2.

Actual Quantity                                          Actual Quantity
Actual Mix                   Price                       Actual Mix
Actual Price                Variance                   Budgeted Price
Tohlman                 360,000 X .20 X \$.35 =        \$25,200      (\$3,600)      360,000 X .20 X \$.40 =
Golden Delicious        360,000 X .50 X \$.29 =        \$52,200       (1,800)      360,000 X .50 X \$.30 =
Ribston                 360,000 X .30 X \$.22 =        \$23,760        2,160       360,000 X .30 X \$.20 =
\$101,160       (\$3,240)
Price
Favorable

Greenwood paid less per pound for Tolman and Golden Delicious apples than budgeted and, so it had a favorable direct
materials price variance of \$3,240 (F).

It also had an unfavorable efficiency variance of \$2,900. Greenwood would need to evaluate if these were unrelated
events or if the lower price resulted from the purchase of apples of poorer quality that affected efficiency. The net effect
in this case from a cost standpoint was favorable -- the savings in price being greater than the loss in efficiency.

Of course, if the applesauce is of poorer quality, Greenwood must also evaluate the potential effects on current and
future revenues that have not been considered in the variances above.

The unfavorable efficiency is entirely attributable to an unfavorable yield ( the mix variance nets to zero). Management
should evaluate the reasons for the unfavorable yield variance. Is it due to poor quality Tolman and Ribston apples which
were acquired at a price lower than budgeted.
sauce is made with a blend
50,000 pounds of applesauce

Budgeted     Budgeted
Price        Cost
\$0.40      \$21,000
\$0.30       63,000
\$0.20       17,500
\$101,500

ctual Quantity                                          Actual Quantity                                          Budgeted Quantity
Actual Mix                       Mix                    Budgeted Mix                    Yield                      Budgeted Mix
udgeted Price                   Variance                Budgeted Price                 Variance                    Budgeted Price
\$28,800           \$7,200   360,000 X .15 X \$.40 =      \$21,600           \$600        350,000 X .15 X \$.40 =         \$21,000
\$54,000         (10,800)   360,000 X .60 X \$.30 =      \$64,800          1,800        350,000 X .60 X \$.30 =             63,000
\$21,600            3,600   360,000 X .25 X \$.20 =      \$18,000               500     350,000 X .25 X \$.20 =             17,500
\$104,400              \$0                               \$104,400         \$2,900                                      \$101,500
Mix                                                    Yield
Variance                     \$2,900                   Unfavorable
\$0                       Efficiency                   \$2,900
Unfavorable
\$2,900                  Alternative Calculation of Yield Variance
d and, so it had a favorable direct                                                  2.33333333        Budgeted #'s of input per # of output
2.4000000        Actual #'s of input per # of output
-0.0666667        Extra #'s of input per # of output
luate if these were unrelated                                                        \$0.290000         W/A budgeted cost per # of input
fected efficiency. The net effect                                                     (\$0.01933)       Extra cost per # of output
an the loss in efficiency.                                                              150,000        Pounds of output
(\$2,900.00)       Unfavorable Yield Variance
ential effects on current and
Alternative Calculation of Yield Variance
0.42857143        Budgeted: #'s of output per # of input
nce nets to zero). Management                                                         0.4166667        Actual: #'s of output per # of input
Tolman and Ribston apples which                                                      0.01190476        Decreased #'s of output per # of input
\$0.676667         W/A budgeted cost per # of output
\$0.008056         Extra cost per # of input
360,000        Pounds of input
\$2,900.00        Unfavorable Yield Variance
Exercise 14-36
Given:
The Energy Products Company produces a gasoline additive, Gas Gain, that
increases engine efficiency and improves gasoline mileage. The actual and
budgeted quantities (in gallons) of materials required to produce Gas Gain and
the budgeted prices of materials in August 2003 are as follows:
Flexible
Actual     Actual     Budgeted Budgeted Actual Budgeted
Chemical          Quantity      Mix      Quantity       Mix      Price    Price
Echol              24,080         0.28     25,200        0.30 \$0.22        \$0.20
Protex             15,480         0.18     16,800        0.20 \$0.46        \$0.45
Benz               36,120         0.42     33,600        0.40 \$0.12        \$0.15
CT-40              10,320         0.12       8,400       0.10 \$0.27        \$0.30
Total              86,000         1.00     84,000        1.00
Required:
1. Calculate the total DM efficiency variance for August 2003.
2. Calculate the total direct materials mix and yield variances for August 2003.
3. What conclusions would you draw from the variance analysis?

Actual Quantity                                    Actual Quantity
Actual Mix                    Price                Actual Mix                    Mix
Actual Price                 Variance             Standard Price                Variance
Echol             86,000 X .28 X \$.22 =        \$5,297.60     \$481.60 86,000 X .28 X \$.20 =        \$4,816.00    (\$344.00)
Protex            86,000 X .18 X \$.46 =        \$7,120.80     \$154.80 86,000 X .18 X \$.45 =        \$6,966.00    (\$774.00)
Benz              86,000 X .42 X \$.12 =        \$4,334.40   (\$1,083.60) 86,000 X .42 X \$.15 =      \$5,418.00     \$258.00
CT-40             86,000 X .12 X \$.27 =        \$2,786.40    (\$309.60) 86,000 X .12 X \$.30 =       \$3,096.00     \$516.00
\$19,539.20    (\$756.80)                            \$20,296.00    (\$344.00)
Price                                              Mix
Favorable
Energy products used a larger total quantity of direct-material inputs than budgeted,
and so showed an unfavorable yield variance.

The mix variance was favorable because the actual mix contained more of the budgeted
cheapest input, Benz, and less of the most costly input, Protex, than the budgeted mix.

The favorable mix variance offset some, but not all, of the unfavorable yield variance --
the overall efficiency variance was unfavorable.

Energy Products will find it profitable to shift to the cheaper mix only if the yield from this
cheaper mix can be improved. Energy products must also consider the effect on output
quality of using the cheaper mix, and the potential consequences for future revenues.
Actual Quantity                                      Standard Quantity
Standard Mix                     Yield                Standard Mix
Standard Price                  Variance              Standard Price
86,000 X .30 X \$.20 =          \$5,160.00      \$120.00 84,000 X .30 X \$.20 =          \$5,040.00
86,000 X .20 X \$.45 =          \$7,740.00      \$180.00 84,000 X .20 X \$.45 =          \$7,560.00
86,000 X .40 X \$.15 =          \$5,160.00      \$120.00 84,000 X .40 X \$.15 =          \$5,040.00
86,000 X .10 X \$.30 =          \$2,580.00       \$60.00 84,000 X .10 X \$.30 =          \$2,520.00
\$20,640.00      \$480.00                              \$20,160.00
Yield
\$136.00                   Unfavorable
Efficiency
Unfavorable
Chapter 14 Problem: Sales Variances

Soda-King manufactures and sells 3 soft drinks: Lemon Kola, Cherry Kola, and Root Kola.
Budgeted and actual results for 2006 are as follows:

Budget Information for 2006                    Actual Information for 2006
Selling Price Variable Cost         Cartons    Selling Price   Variable Cost     Cartons
Product     per Carton    per Carton             Sold      per Carton      per Carton        Sold
Lemon Kola          \$6.00          \$4.00           400,000         \$6.20             \$4.50     480,000
Cherry Kola         \$4.00          \$2.80           600,000         \$4.25             \$2.75     900,000
Root Kola           \$7.00          \$4.50         1,500,000         \$6.80             \$4.60   1,620,000

1. Use the post method to calculate the individual product and total product variances
requested below. Calculate all variances in terms of contribution margin.
a. Using the post method, compute the sales-price variance for August 2006.
b. Using the post method, compute the sales-mix variance for August 2006.
c. Using the post method, compute the sales-quantity variance for August 2006.
d. Using the post method, compute the sales-volume variance for August 2006.

2. Soda-King prepared the budget for 2006 assuming a 10% market share based on total sales
in the western region of the United States. The total soft drinks market was estimated to reach
sales of 25 million cartons in the region. However, actual total sales volume in the western
region was 24 million cartons. Calculate the market-share and market-size variances for Soda-
King in 2006. Calculate all variances in terms of contribution margin. Use the post method.

Solution to #1

Budget for August 2006
Selling Price   Variable Cost      CM        Sales Volume       Budgeted    Budgeted
Product        per pound       per pound      per pound     in pounds         Sales Mix      CM
Lemon Kola          \$6.00           \$4.00         \$2.00             400,000        0.16         \$800,000
Cherry Kola         \$4.00           \$2.80         \$1.20             600,000        0.24         \$720,000
Root Kola           \$7.00           \$4.50         \$2.50           1,500,000        0.60       \$3,750,000
2,500,000        1.00       \$5,270,000
Budgeted W/A CM per unit                \$2.108
Actual for August 2006
Selling Price   Variable Cost      CM        Sales Volume         Actual
Product        per pound       per pound      per pound     in pounds         Sales Mix
Lemon Kola          \$6.20           \$4.50         \$1.70             480,000        0.16
Cherry Kola         \$4.25           \$2.75         \$1.50             900,000        0.30
Root Kola           \$6.80           \$4.60         \$2.20           1,620,000        0.54
3,000,000            1.00

AQ                Sales Price                                                        AQ            Sales
Actual             Actual      Actual       AM                 Variance             Actual       Actual      Budgeted            AM                Mix
Product           Quantity         Sales Mix   CM per Unit     AP           (Expressed in CM)         Quantity     Sales Mix    CM per Unit          BP          Variance
Lemon Kola           3,000,000           0.16        \$1.70        \$816,000          (\$144,000)           3,000,000      0.16         \$2.00             \$960,000                \$0
Cherry Kola          3,000,000           0.30        \$1.50       \$1,350,000          \$270,000            3,000,000      0.30         \$1.20           \$1,080,000      \$216,000
Root Kola            3,000,000           0.54        \$2.20       \$3,564,000         (\$486,000)           3,000,000      0.54         \$2.50           \$4,050,000      (\$450,000)
\$5,730,000         (\$360,000)                                                       \$6,090,000      (\$234,000)
Sales Price                                                                      Sales
Variance                                                                            Mix
(Expressed in CM)                                                                    Variance
Unfavorable                                                                    Unfavorable
(\$360,000)                                                                     (\$234,000)

Solution to #2

Static Budget
Actual Market Size                 Market                      Actual Market Size                     Market                 Budgeted Market Size
Actual Market Share                   Share                    Budgeted Market Share                     Size                 Budgeted Market Share
Budgeted Average CM per Unit                Variance           Budgeted Average CM per Unit                   Variance           Budgeted Average CM per Unit

24,000,000 X .125 X \$2.108                                        24,000,000 X .10 X 2.108                                       25,000,000 X .10 X \$2.108
\$6,324,000                    \$1,264,800                             \$5,059,200                  (\$210,800)                      \$5,270,000
Market-Share                                                       Market-Size
Actual Market Share                                 Variance                                                          Variance
(3,000,000/24,000,000) = .125                      Favorable                                                         Unfavorable
0.125
Sales-Quantity Variance
Budgeted Market Share                                                               \$1,054,000
(2,500,000/25,000,000) = .10                                                        \$1,054,000
0.10                                                  Favorable
Sales-Volume Variance
\$53,120 F

Sales-Mix Variance                                 Sales-Quantity Va
\$6,120 F

Market-Share Variance
\$56,400 F
AQ            Sales                                               BQ
Actual       Budgeted        Budgeted           BM          Quantity     Budgeted    Budgeted    Budgeted         BM
Quantity      Sales Mix      CM per Unit         BP          Variance     Quantity    Sales Mix   CM per Unit      BP
3,000,000       0.16           \$2.00             \$960,000     \$160,000    2,500,000     0.16        \$2.00        \$800,000
3,000,000       0.24           \$1.20             \$864,000     \$144,000    2,500,000     0.24        \$1.20        \$720,000
3,000,000       0.60           \$2.50            \$4,500,000    \$750,000    2,500,000     0.60        \$2.50       \$3,750,000
\$6,324,000   \$1,054,000                                         \$5,270,000
Sales
Quantity
Variance
Favorable
\$1,054,000
Product
Lemon Kola        \$160,000
Cherry Kola       \$360,000
Root Kola         \$300,000
Sales-Volume Variance
\$820,000
\$820,000
Favorable
Sales-Quantity Variance
\$47,000 F

hare Variance                  Market-Size Variance
\$9,400 U

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