Question

Question 2: Further Aspects of Budgeting and Variance Analysis-Sales mix and volume variance                                                                                                                                                                                  

Jack plc makes and sells three types of fan for which the following budget/standard information and actual information are available for a four-week period.

Model	Budgeted sale (unit)	Standard unit data
		Selling price ($)	Variable cost ($)	Actual sales (unit)
Superb	5,000	15	1.0	8,000
Excellent	15,000	14	2.0	11,000
Good	5,000	13	1.0	4,000

Budgeted fixed costs are $250,000 for the four-week period. Jack plc allocates fixed costs on the basis of budgeted units of sale in calculating expected net profit.

Required 2.1 Calculate the sales mix and sales quantity variances for each model for the four-week period by using expected net profit as the variance valuation basis.                                        Your answer: Show your workings here (Use table if necessay. Expand the space as required): Sales mix variance Sales quantity variance                                                                                                           Add/delete row or coloumn if necessary

Required 2.2 Explain why managers need to divide sales volume variance into sales mix and sales quantity variances calculated in requirement (I).                                                                                 Word limit: 100 words. Note the word count at the end of your answer] Your answer (expand the space here): Word count=

Answer 1

Q1) Sales-mix variance

Step 1: Standard Mix ratio
	Budgeted sale units	standard price mix
Superb	5,000.00	20	5000/25000*100
Excellent	15,000.00	60	15000/25000*100
Good	5,000.00	20	5000/25000*100
	25,000.00	100

Step 2: Calculate sales quantities in proportion to standard price mix
	Actual sale units	standard price mix	Actual sales in standard mix
Superb	8,000.00	20	4,600.00	23,000*20/100
Excellent	11,000.00	60	13,800.00	23000*60/100
Good	4,000.00	20	4,600.00	23000*20/100
	23,000.00	100	23,000.00

Step3: Calculate the difference between Actual Sales units with Standard Mix Quantity
	Actual sale units	Actual sales in standard mix	Difference	Result
Superb	8,000.00	4,600.00	3,400.00	Favourable
Excellent	11,000.00	13,800.00	(2,800.00)	Adverse
Good	4,000.00	4,600.00	(600.00)	Adverse
	23,000.00	23,000.00	-

Step 4: Calculate the standard contribution per unit
	Unit selling Price	Variable price per unit	Standard ContributionPer unit
Superb	15	1	14
Excellent	14	2	12
Good	13	1	12

Step 5: Calcualte the variance for each product
	Standard ContributionPer unit	Step3 Actual sales units with Standard Mix Quantity	Variance	Result
Superb	14	3,400.00	47,600.00	Favourable
Excellent	12	(2,800.00)	(33,600.00)	Adverse
Good	12	(600.00)	(7,200.00)	Adverse
			6,800.00

Step 6: Add the individual variances
Sales mix variance	47600-33600-7200
	6800	Favourable

expected net profit
	Standard Sales Mix (A)	Selling price per unit (B)	Sales Value ($) (AXB)=( c)	Variable price per unit (D)	Variable Cost ($) (AxD)=E	Contribution($) f=c-e	Fixed Cost($) g	Distribution ratio	Budgeted Sales unit on whose basis fixed cost will be distributed	Expected profit (e-g)=h
Superb	4,600.00	15	69,000.00	1	4,600.00	64,400.00	50,000.00	20	5,000.00	14,400.00
Excellent	13,800.00	14	193,200.00	2	27,600.00	165,600.00	150,000.00	60	15,000.00	15,600.00
Good	4,600.00	13	59,800.00	1	4,600.00	55,200.00	50,000.00	20	5,000.00	5,200.00
									25,000.00	35,200.00
Favoruable sales mix variance suggests that the higher proportion of more profitable products were sold during the period than was anticipated in the budget.