Question

top managers of Preston Preston Industries predicted 2014 2014 sales of 14 comma 400 14,400 units of its product at a unit price of $ 8.50 $8.50. Actual sales for the year were 14 comma 300 14,300 units at $ 9.50 $9.50 each. Variable costs were budgeted at $ 2.60 $2.60 per​ unit, and actual variable costs were $ 2.70 $2.70 per unit. Actual fixed costs of $ 45 comma 000 $45,000 exceeded budgeted fixed costs by $ 3 comma 500 $3,500. Prepare Preston Preston​'s flexible budget performance report. What variance contributed most to the​ year's favorable​ results? What caused this​ variance?

Answer 1

Preston Industries Flexible Budget Performance Report For 2014
	Actual Results	Revenue & Spending Variances	Flexible Budget	Activity Variances	Static Budget
Activity Level in Units	14,300		14,300		14,400
Sales Revenue	$ 135,850	$ 14,300 F	$ 121,550	$ 850 U	$ 122,400
Less: Variable Costs	38,610	1,430 U	37,180	260 F	37,440
Contribution Margin	97,240	12,870 F	84,370	590 U	84,960
Less: Fixed Costs	45,000	3,500 U	41,500	0	41,500
Net Operating Income	52,240	9,370 F	42,870	590 U	43,460

The favorable Sales Price Variance contributed most to Preston's favorable results.Sales price variance is the measure of change in sales revenue as a result of variance between actual and budgeted selling price. The actual selling price of $ 9.50 per unit exceeded the budgeted selling price per unit by $ 1.00. That made a big difference.

It could be a result of one or more of the following:

• Aggressive sales promotion campaign.
• Decrease in number of competitors
• Higher pricing power enjoyed by Preston Industries due to better or consistent quality.