Next year's budget for Temper, 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 1 126,200 $958,579 2 56,800 $721,010 Required:(Be sure to indicate whether the variance is favorable or unfavorable.)a. Compute the sales activity variance for each product.b. Compute the sales mix variance for each product.c. Compute the sales quantity 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 sales mix: Product 1: 126,000/(126,000 + 54,000) = 70%; Product 2: 30%.

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) ? [(126,200 + 56,800) × 70% × $3.85] = $7,315 U.
Product 2: (56,800 × $7.25) ? [(126,200 + 56,800) × 30% × $7.25] = $13,775 F.

c.
Product 1: [(126,200 + 56,800) × 70% × $3.85] ? (126,000 × $3.85) = $8,085 F.
Product 2: [(126,200 + 56,800) × 30% × $7.25] ? (54,000 × $7.25) = $6,525 F.