Question

Pricing Strategy, Sales Variances

Eastman, Inc., manufactures and sells three products: R, S, and T. In January, Eastman, Inc., budgeted sales of the following.

	Budgeted Volume	Budgeted Price
Product R	111,300	$29
Product S	145,100	23
Product T	16,200	19

At the end of the year, actual sales revenue for Product R and Product S was $3,069,900 and $3,480,400, respectively. The actual price charged for Product R was $27 and for Product S was $22. Only $8 was charged for Product T to encourage more consumers to buy it, and actual sales revenue equaled $343,200 for this product.

Required:

1. Calculate the sales price and sales volume variances for each of the three products based on the original budget.

	Sales price variance		Sales volume variance
Product R	$	Unfavorable	$	Favorable
Product S	$	Unfavorable	$	Favorable
Product T	$	Unfavorable	$	Favorable

Answer 1

Basic Data
Product	Budgeted Price per Unit (A)	Budgeted Total Volume(B)	Budgeted Total Revenue (C=AxB)	Actual Price per Unit (D)	Actual Total Revenue (E)	Actual Quantity (F=E/D)
Product R	$              29.00	111,300	$ 3,227,700.00	$        27.00	$ 3,069,900.00	113,700
Product S	$              23.00	145,100	$ 3,337,300.00	$        22.00	$ 3,480,400.00	158,200
Product T	$              19.00	16,200	$      307,800.00	$          8.00	$      343,200.00	42,900
Total		272,600	6,872,800		6,893,500	314,800

Product	Sales Price Variance		Sales Volume Variance
Product R	$ (227,400.00)	Unfavourable	$        69,600.00	Favourable
Product S	$ (158,200.00)	Unfavourable	$      301,300.00	Favourable
Product T	$ (471,900.00)	Unfavourable	$      507,300.00	Favourable
Total	$ (857,500.00)		$      878,200.00

Sales Price Variance = (Actual Price per unit - Budgeted Price per unit) x Actual Quantity Sold = (D-A)xF

Sales Volume Variance = (Actual Quantity sold - Budgeted Quantity sold) x Budgeted Price = (F-B)xA