Question

1. Borg Power Trains produces drive-train components for all-wheel automobiles. For the year ended June 30, 2015 the budged and actual results are as follows:

	Actual	Budget	Difference
Net Sales	$8,305	$7,437	$868
Cost of Sales (variable)	5,000	4,500	500
Cost of sales (fixed)	1,549	1,379	170
Gross Profit	1,756	1,558	198
Selling, general, admin (variable)	94	63	31
Selling, general, admin (fixed)	699	640	59
Operating Income	963	855	108

Required:

-What is the total budget variance for the year?

-Budgets projected sales of 100,000 clutches at $30.27 each (variable cost $19.08) and 90,000 transfer cases at $49 each (variable costs $29.50). Borg sold 110,00 clutches for $3,305,000 and 100,000 transfer cases for $5,000,000. What is the flexible budget variance and the sales volume variance in contribution margin?

-What are the sales-mix and sales-quantity variances?

-Assuming a projected market of 2 million clutches and 2.5 million transfer cases and actual market sales of 2.4 million clutches and 2.6 million transfer cases, calculate the market size and market share variances for clutches.

Answer 1

#1Total Budget variance= variance in operating income=108 unfavourable

#2

Flexible budget variance

For clutches=(actual price-budgeted price)actual qantity sold

actual price=3,305,000/110,000=30.045

(30.045-30.27)110,000=24,000 unfavourable

For Transfer case

Actual price=5,000,000/100,000=50

flexible budget variance=(50-49)100,000=100,000 Favourable

Total Flexible budget Variance=100,000 favourable+24,000 unfavourable

=76,000 Favourable

Standard contribution of clutches=30.27-19.08=11.19

Standard contribution of transfer case=49-29.5=19.5

Volume variance =(Actual sales volume-budget volume)Budgeted contribution

For clutches =(110,000-100,000)11.19=111,900 Favourable

For Transfer case=(100,000-90,000)19.5=195,000

To find Mix variance we have to find Weighted average standard price of actual mix and standard mix

	budget price (1)	Budget quantity (2)	actual quantity(3)	budgeted revenue(1)*(2)	flexible budget revenue (1)*(3)
Clutches	30.27	100,000	110,000	3,027,000	3,329,700
transfer case	49	90,000	100,000	4,410,000	4,900,000
Total		190,000	210,000	7,437,000	8,229,700

Weighted average standard price of actual mix=8,229,700/210,000=39.19

Weighted average standard price of standard mix=7,437,000/190,000=39.142

Sales mix variance=

(Weighted average standard price of actual mix-Weighted average standard price of std mix)*actual quantity

(39.19-39.142)*210,000=10,080 Favourable

Sales Quantity variance=(Actual quantity-standard quantity)Weighted average standard price of standard mix

(210,000-190,000)*39.142=782,840 Favourable

##

	budgeted market	Budgeted market share	Actaul market	actual market share	Variance
clutches	2M	100,000/2,000,000 =5%	2.4M	110,000/2,400,000 =4.6%	8% decrease in budgeted market share
transfer case	2.5M	90,000/2,500,000 =3.6%	2.6M	100,000/2,600,000 =3.85%	6.94% increase in market share from budgeted market share