Next year's budget for Howard, Inc., a multi-product company, is given below: 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. Howard analyzes the effects its sales variances have on the profitability of the company.Product Line Units Sales Mkt shareA 252,230 $1,848,579 15.0%B 113,770 $1,479,010 17.0%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

Question

product.

What will be an ideal response?

Answer 1

Contribution margin per unit: Product A: ($1,890,000 ? 919,800)/252,000 = $3.85; Product B: ($1,377,000 - $594,000)/108,000 = $7.25.
Budgeted industry: Product A: 252,000/12.5% = 2,016,000; Product B: 108,000/20% = 540,000.
Actual industry: Product A: 252,230/15% = 1,681,533; Product B: 113,770/17% = 669,235.

a.
Product A: (252,230 × $3.85) ? (252,000 × $3.85) = $885.50 F;
Product B: (113,770 × $7.25) ? (108,000 × $7.25) = $41,832.50 F.

b.
Product A: (252,230 × $3.85) ? [(1,681,533 × 12.5%) × $3.85] = $161,847.74 F;
Product B: (113,770 × $7.25) ? [(669,235 × 20%) × $7.25] = $145,558.25 U.

c.
Product A: [(1,681,533 × 12.5%) × $3.85] - (252,000 × $3.85) = $160,962.24 U;
Product B: [(669,235 × 20%) × $7.25] ? (108,000 × $7.25) = $187,390.75 F.