Question

Peninsula Candy Company makes three types of candy bars: Chewy, Chunky, and Choco-Lite (Lite). Sales volume for the annual budget is determined by estimating the total market volume for candy bars and then applying the company's prior year market share, adjusted for planned changes due to company programs for the coming year. Volume is apportioned among the three bars based on the prior year's product mix, again adjusted for planned changes for the coming year.

The following are the company budget and the results of operations for July.

Budget Chewy Chunky Choco-Lite Total
Sales-units (in thousands) 1,600 bars 1,600 bars 3,200 bars 6,400 bars
Sales-dollars (in thousands) $ 176 $ 256 $ 768 $ 1,200
Variable costs 136 200 672 1,008
Contribution margin $ 40 $ 56 $ 96 $ 192
Manufacturing fixed cost 30 37 56 123
Product margin $ 10 $ 19 $ 40 $ 69
Marketing and administrative costs (all fixed) 45
Operating profit $ 24
Actual
Sales-units (in thousands) 1,200 bars 1,600 bars 3,300 bars 6,100 bars
Sales-dollars (in thousands) $ 84 $ 256 $ 768 $ 1,108
Variable costs 53 214 667 934
Contribution margin $ 31 $ 42 $ 101 $ 174
Manufacturing fixed cost 28 37 56 121
Product margin $ 3 $ 5 $ 45 $ 53
Marketing and administrative costs (all fixed) 41
Operating profit $ 12

Industry volume was estimated at 96.0 million bars for budgeting purposes. Actual industry volume for July was 89.4 million bars.

Required:

Break down the total activity variance into sales mix and quantity parts. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

Sales mix variance

Particulars	Chewy	Chinky	Choco	Remarks
Actual quan sold (A)	1200	1600	3300	Already given in ques
Actual quan sold in standard mix (B)	=6100X1/4 =1525	=6100X1/4 =1525	=6100X2/4 =3050	Standard mix: = 1600:1600:3200 =1:1:2
Standard profit per unit (C)	10	19	40	Already given in ques
Sales mix varaince = (A-B) X C	= (1200-1525) X 10 = 3250 U	= (1600-1525) X 19 = 1425 F	= (3300-3050) X 40 = 10000 F

Sales quantity varaince

Particulars	Chewy	Chinky	Choco	Remarks
Actual quan sold in standard mix (A)	1525	1525	3050	As calculated above
Budgeted sales (B)	1600	1600	3200	Already given in question
Standard profit per unit (C)	10	19	40	Already given in ques
Sales quantity varaince = (A-B) X C	= (1525-1600) X 10 = 750 U	= (1525-1600) X 19 = 1425 U	= (3050-3200) X 40 = 6000 U

Total activity variance = Sales mix + Sales quantity varaince

Particulars	Chewy	Chinki	Choco
Activity variance	4000 U	-	4000F