Question

Margot’s Ice Cream operates several stores in a major metropolitan city and its suburbs. Its budget and operating data for the current year follow:

Flavor	Budgeted Data								Actual Operating Results
	Gallons		Selling Price per Gallon			Variable Costs per Gallon			Gallons			Selling Price per Gallon			Variable Costs per Gallon
Vanilla	360,000		$	2.25		$	1.55			300,000		$	2.10		$	1.45
Chocolate	450,000			3.50			2.60			420,000			3.35			2.50
Strawberry	300,000			2.80			1.70			430,000			3.00			1.75
Anchovy	90,000			4.50			3.00			210,000			5.00			3.20

Required:

1. Compute these variances for the individual flavors and total quantity sold. (Do not round intermediate calculations.)

Answer 1

Note:

1. Sales variance is calculated in order understand the deviations from the budgeted plans as against the actual results.
2. Sales is commonly understood as revenue, profit maximization is one of the goal of financial management as such every organisation chalks out a revenue plan in each financial year to attain minimum rate of return on its investments.
3. Quite often there can be deviations from the targets set as against the actual results and thus it becomes imperative for the management to introspect the reasons behind such variance be it favorable or adverse.
4. Sales value variance is basically the total difference between the budgeted sales vs the actual sales this variance can be further broken down into Sales price variance and Sales volume variance i.e two factors impact the overall value of sales one is the price the other is the volume, price variance may vary due to escalation in prices of materials or inefficiency of the sales team to negotiate with the customer whereas volume is impacted due to several micro and macro economic factors.
5. Further sales volume variance is further broken down into sales quantity variance and sales mix variance where both the variances consider the RSQ (Revised Standard Quantity) i.e sales of actual output in the budgeted output ratio is compared with the budgeted quantity and is multiplied with the standard price this is because the actual price is prone to changes whereas standard price remains fixed.
6. The Sales margin variance is same as sales value variance the only change is we have to consider the contribution per unit i.e sales price per unit minus the variable cost per unit in order to calculate the margin.

F - Favorable

A - Adverse