Question

   Flexed Budget for October Actual for October

Output 40,000 units 40,000 units

Sales $500,000 $400,000

Raw materials $100,000 $88,000

Labour $250,000 $180,000

Overheads $325,000 $375,000

The adverse (unfavourable) sales variance of $100,000 is best explained by-:

a. an increase in the expenses incurred by the business in the period

b. the sales manager and sales team not making the target level of sales

c. the price the units were sold for was less than budgeted

d. it is not possible to tell from this information

Answer 1

VARIANCE ANALYSIS TABLE

PARTICULARS	BUDGET FOR OCTOBER	ACTUAL FOR OCTOBER	ANALYSIS
output	40,000 units	40,000 units	there is no change from the budgetted output
sales	$ 500,000	$ 400,000	the sales revenue has decreased by $100,000 from the budgetted sales revenue and is also seen that output remains as per budget . therefore price of units sold is less than the bugetted price
raw materials	$ 100,000	$ 88,000	cost of raw materials is lesser than the budgetted amount therefore the variance favourable by $ 12000
labor	$ 250,000	$ 180,000	cost of labor is lesser than the budgetted amount therefore the variance favourable by $ 70,000
overheads	$ 325,000	$ 375,000	overheads is more than the budget by $ 50,000 which is adverse

CAUSE OF SALES VARIANCE (adverse)

as per the question above the sales variance ( adverse) $ 100,000 is due the lesser sales price charged per unit than the budget amount. The output level remains the same therefore the adverse sales variance is best explained by option C - the price for which units sold is less than the budgeted.

* the cause for the adverse sales variance is mentioned in highlighted in the analysis table above