Question

In: Accounting

Gourmet Coffee has an exclusive contract with distributors of coffee beans. Two brands of coffee beans...

Gourmet Coffee has an exclusive contract with distributors of coffee beans. Two brands of coffee beans are imported, Arabica and Robusta, and sold to retail outlets.   The monthly budget for the contract is based on a combination of last year’s performance, a forecast of general industry sales, and the company’s expected share of the Canadian market for imported coffee. The following information is provided for the month of May:

Budgeted

Actual

Arabica

Robusta

Arabica

Robusta

Price per kg.

$10.00

$12.00

$11.00

$13.50

Variable cost per kg.

$ 6.00

$5.00

$6.50

7.50

Contribution margin

$ 4.00

$7.00

$4.50

$6.00

Sales (in kgs.)

10,000

15,000

11,000

14,000

Budgeted fixed costs are $6,500. Actual fixed costs are $7,000.

Estimated market size for coffee is 1,000,000 kgs.

Assume that the actual industry sales are 100,000 kgs., which of the following statements is FALSE?

Question 12 options:

Total market size variance is unfavourable due to the lower contribution margin and sales volume of Robusta.

Total market share variance is unfavourable due to a decrease in sales volume of Robusta.

Market size variance is unfavourable while market share variance for the coffee beans is favourable.

Total sales quantity variance is unfavourable due to unfavourable market size and unfavourable market share variances.

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Solutions

Expert Solution

(A) Option A is false. Since while calculating total market size variance we use budgeted contribution per unit and budgeted market share. There is no impact on market size variance if Actual contribution margin and sales volume decreases. So this statement is false.

(B) Option B is false. Since Market share variance is favourable as shown in calculation above. So this statement is aslo false.

(C) Option C is true. Since Market size variance is unfavourable and market share variance is favourable as shown in calculaiton in image above.

(D) Option D is false. Since There is no impact of market size variance and market share variance on sales quantity variance. So this statement is false.

Note :

We have assumed that estimated market size of 1,000,000 Kg of coffee beans is for the year and accordingly calculations were made.

ekkarill92 answered 2 years ago
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