Question

The Octova Corporation manufactures two types of vacuum cleaners: the ZENITH for commercial building use and the House-Helper for residences. Budgeted and actual operating data for the year 2017 are as follows:

Static Budget                                Zenith            House-Helper                              Total

Number sold                                  20,000                            80,000                         100,000

Contribution margin           $4,600,000                  $15,200,000                 $19,800,000

Actual Results                             Zenith            House-Helper                              Total

Number sold                                  21,500                            64,500                           86,000

Contribution margin           $6,665,000                  $14,190,000                 $20,855,000

Computer the variances below in terms of contribution margin $. Indicate whether the variance is favorable or unfavorable.

a. Compute total sales-volume variance:

b. Compute the sales-mix variance by type of vacuum cleaner and in total.

Zenith:

House Helper:

Total:

c. Compute the sales-quantity variance by type of vacuum cleaner and in total.

Zenith:

House Helper:

Total:

Answer 1

1. Calculation of total sales-volume variance:

Budgeted quantity = 100,000 units

Actual quantity sold = 86,000 units

Budgeted contribution per unit = Budgeted contribution / Budgeted quantity of units sold = $19,800,000 / 100,000 = $198

Total Sales volume variance = (Total Budgeted quantity - Total Actual quantity) * Budgeted contribution per unit

= (100,000 - 86,000) * $198 = $2,772,000 (U) Unfavorable

2. Calculation of sales-mix variance:

Standard-mix ratio of Zenith = 20,000 / 100,000 = 20%

Units sales of standard mix of Zenith = 86,000 * 20% = 17,200

Standard-mix ratio of House-helper = 80,000 / 100,000 = 80%

Units sales of standard mix of House-helper = 86,000 * 80% = 68,800

Budgeted Contribution margin per unit of Zenith = $4,600,000 / 20,000 = $230 per unit

Budgeted Contribution margin per unit of House-helper = $15,200,000 / 80,000 = $190 per unit

Sales Mix Variance of Zenith = (Actual Units Sold - Unit Sales at Standard Mix) * Budgeted Contribution Per Unit

= (21,500 - 17,200) * $230 = $989,000 (U) Unfavorable

Sales Mix Variance of House-helper = (Actual Units Sold - Unit Sales at Standard Mix) * Budgeted Contribution Per Unit

= (64,500 - 68,800) * $190 = $817,000 (F) Favorable

Total sales-mix variance = $989,000 - $817,000 = $172,000 (U) Unfavorable

3. Calculation of sales-quantity variance:

Budgeted quantity of units sold of Zenith = 20,000

Budgeted quantity of units sold of House-helper = 80,000

Actual quantity of units sold of Zenith = 21,500

Actual quantity of units sold of House-helper = 64,500

Budgeted contribution per unit of Zenith = Budgeted contribution / Budgeted quantity of units sold = $4,600,000 / 20,000 = $230

Budgeted Contribution margin per unit of House-helper = Budgeted contribution / Budgeted quantity of units sold = $15,200,000 / 80,000 = $190 per unit

Sales quantity variance of Zenith = (Budgeted quantity of Zenith - Actual quantity of Zenith) * Budgeted contribution per unit

= (20,000 - 21,500) * $230 = $345,000 (F) Favorable

Sales quantity variance of House-helper = (Budgeted quantity of House-helper - Actual quantity of House-helper) * Budgeted contribution per unit

= (80,000 - 64,500) * $190 = $2,945,000 (U) Unfavorable

Total sales-quantity variance = $345,000 - $2,945,000 = $2,600,000 (U) Unfavorable