Next year's budget for Alton, Inc., 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:Product Line Units Sales Mkt share1 126,200 $958,579 16.0%2 56,800 $721,010 14.2%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 product.

Question

What will be an ideal response?

Answer 1

Contribution margin per unit: Product 1: ($945,000 ? 459,900)/126,000 = $3.85; Product 2: ($688,500 ? $297,000)/54,000 = $7.25.
Budgeted industry: Product 1: 126,000/12% = 1,050,000; Product 2: 54,000/20% = 270,000.
Actual industry: Product 1: 126,200/16% = 788,750; Product 2: 56,800/14.2% = 400,000.

a.
Product 1: (126,200 × $3.85) ? (126,000 × $3.85) = $770 F.
 Product 2: (56,800 × $7.25) ? (54,000 × $7.25) = $20,300 F.

b.
Product 1: (126,200 × $3.85) ? [(788,750 × 12%) × $3.85] = $121,467.50 F.
Product 2: (56,800 × $7.25) ? [(400,000 × 20%) × $7.25] = $168,200 U.

c.
Product 1: [(788,750 × 12%) × $3.85] ? (126,000 × $3.85) = $120,697.50 U.
Product 2: [(400,000 × 20%) × $7.25] ? (54,000 × $7.25) = $188,500 F.