Question

Sales Mix and Quantity Variances
Chow-4-Hounds (C4H) makes pet food for sale in supermarkets. C4H produces two general types: Branded and Generic. The two differ primarily in the ingredients used. At budget, Branded sells for $12 per case and has a variable cost to produce $5 per case. Generic sells for a budgeted $9 per case and has a budgeted variable cost to produce $4 per case. C4H expects to sell 30 percent Branded and 70 percent Generic regardless of the sales volume. C4H budgeted total sales of 200,000 cases for March. The actual case volume sold in March was 210,000 cases, of which 60,000 were Branded. Total actual revenues in March were $2,055,000, of which $780,000 were from sales of Branded cases.
Required
1. Compute the activity variance for C4H for March.
2. Compute the mix and quantity variances for March.

Answer 1

1) Activity variance for C4H for March:

Activity Variance = (Budgeted sales - actual sales) * Budgeted contribution margin per unit

Contribution Margin per unit

		Branded	Generic
Sale price per unit		12	9
Less: Variable cost per unit		5	4
Contribution Margin per unit		7	5
Bugeted Sales (200,000* 30% , 70%)		60,000	140,000
Actual sales		60,000	150,000
Actual Variance	(60,000 - 60000) * 7	0
	(140,000 - 150,000) * 5		50,000 F

2) Mix and quantity variances for March:

Mix Variance = (Actual sales in Budgeted mix - Actual sales) * Budgeted contribution margin per unit

		Branded	Generic
Actual Sales in Budgeted Mix	(210,000* 30% , 70%)	63,000	147,000
Actual Sales		60,000	150,000
Mix Variance	(63,000 - 60,000) * 7	21,000 U
	(147,000 - 150,000) * 5		15,000 F

Quantity Variance = (Budgeted Sales - actual sales) * Budgeted cost per unit

		Branded	Generic
Bugeted Sales		60,000	140,000
Actual Sales		60,000	150,000
Quantity Variance	(60,000- 60,000) * 5	0
	(140,000 -150,000) * 4		40,000 U

*** F - Favourable

U - Unfavourable