Question

Prepare a variance analysis between the budget and actual. You should present three variances: (1) the difference in profit due to selling more or less units, (2) the difference in profit due to selling units at a higher or lower price, and (3) the difference in profit due to producing more or less units.

In terms of variances, discuss the budget and the actual performance and changes needed to make in the budget. (Please answer all questions including discussion question)

	Price	Cups Sold	Cups Produced	Profit
	$0.65	122	148	$49.70
	$0.65	196	258	$75.80
	$0.65	166	208	$66.30
	$0.65	26	68	$3.30
	$0.65	44	88	$11.00
	$0.60	118	168	$37.20
	$0.60	188	238	$65.20
	$0.60	98	138	$31.20
	$0.60	158	168	$61.20
	$0.60	158	178	$59.20
Actual	$0.62	128	163	$46.76
Budget	$0.50	280	290	$82.00

Answer 1

Calculation of Variance

1) the difference in profit due to selling more or less units,

Sales Variance = (BQ * BP) – (AQ * AP)

(All Sales Fig) BQ = Budgeted Quntity , BP = Budgeted profit, AQ = Actual Quntity, AP = Actual Profit

BQ = 280    BP= 82 AQ = 128    AP= 46.76

=(280*82)-(128*46.76)

=16974 qty

Sales margin variance due to sales qty= Standard profit per unit( Actual qty- Budgeted Qty)

standard or budgeted profit per unit= profit / qty = 82/280

= 0.29(128-280)

= - $44.51

if less qty sales

(2) the difference in profit due to selling units at a higher or lower price,

Sales Margin Variance (SMV) Due to Selling Price

=Actaul qty(Actual price- Budgeted price)\

=128(46.76-82)

=4510 qty

3) the difference in profit due to producing more or less units.

Sales margin variance due to Producing qty= Budgeted profit per unit( Actual qty Produce- Budgeted Qty Produce)

standard or budgeted profit per unit= profit / qty = 82/280

= $0.29(163-290)

= - $36.83