IMChap017

Chapter 17 - Additional Topics in Variance Analysis

Chapter 17Additional Topics in Variance Analysis

Learning Objectives

1. Explain how to prorate variances to inventories and cost of goods sold.

2. Use market share variances to evaluate marketing performance.

3. Use sales mix and quantity variances to evaluate marketing performance.

4. Evaluate production performance using production mix and yield variances

5. Apply the variance analysis model to nonmanufacturing costs.

6. Determine which variances to investigate.

Chapter Outline

I. PROFIT VARIANCE ANALYSIS WHEN UNITS PRODUCED DO NOT EQUAL UNITS SOLD♦ Reconciling variable costing budgets and full-absorption income statements

II. MATERIALS PURCHASES DO NOT EQUAL MATERIALS USEDIII. MARKET SHARE VARIANCE AND INDUSTRY VOLUME VARIANCEIV. SALES ACTIVITY VARIANCES WITH MULTIPLE PRODUCTS

A. Evaluating product mixB. Evaluating sales mix and sales quantity

• Sources of the sales mix varianceV. PRODUCTION MIX AND YIELD VARIANCES

♦ Mix and yield variances in manufacturingVI. VARIANCE ANALYSIS IN NONMANUFACTURING SETTINGS

A. Using the profit variance analysis in service and merchandise organizationsB. Efficiency measuresC. Mix and yield variances in service organizations

VII. KEEPING AN EYE ON VARIANCES AND STANDARDSA. How many variances to calculateB. When to investigate variancesC. Updating standards

VIII. SUMMARY

17-1© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or

distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Key Concepts

LO 17-1 Explain how to prorate variances to inventories and cost of goods sold.

♦ The analysis of variances becomes more complicated when the units sold do not equal the units produced (i.e., when inventory is present).

• The assumption that production was greater than sales has no effect on the sales activity variance because the master budget and flexible budget are based on sales volume. So are the sales price variance, and marketing and administrative variances in general.

• In the time period in which units are produced, the variable production cost variance is calculated as follows:

Variance = (Actual variable cost – Estimated variable cost) × Units produced.

• The actual variable production costs are really a hybrid.

Actual variable production costs

= Flexible budget variable production costs

+ (or -) Variable production cost variances.

======================

Demonstration Problem 1(Revised from Chapter 16 Demonstration Problem 1)

The accountant at EZ Toys, Inc. is analyzing the production and cost data for its Trucks Division. For October, the actual results and the master budget data are presented below.

Actual results Budget data12,000 trucks produced10,000 trucks sold

12,000 trucks planned

Unit selling price $15 Unit selling price $14Unit variable costs:a Unit variable cost: Direct materials $5.28 Direct materials $5 Direct labor 5.10 Direct labor 4 Variable overhead 2.30 Variable overhead 2Total variable costs $12.68 Total unit variable costs $11Fixed overhead $9,000 Fixed overhead $9,600




a These are average costs.




Required: Prepare a profit variance analysis.

Solution:

Actual(based on

actual activity of

10,000 units sold)

Manufacturing variances

Sales price variance

Flexible budget

(based on actual

activity of 10,000 units

sold)

Sales activity variance

Master budget

(based on 12,000 units

planned)Sales revenue $150,000 $10,000 F $140,000 $28,000 U $168,000Less: CostsVariable costs Direct materials $53,360 $3,360 Ua $50,000 $10,000 F $60,000 Direct labor 53,200 13,200 Ub 40,000 8,000 F 48,000 Variable overhead 23,600 3,600 Uc 20,000 4,000 F 24,000Total variable costs $130,160 $110,000 $22,000 F $132,000Contribution margin $19,840 $30,000 $6,000 U $36,000 Fixed overhead 9,000 600 F 9,600 0 9,600Operating profit $10,840 $19,560 U $10,000 F $20,400 $6,000 U $26,400

F = Favorable variance.U = Unfavorable variance.

a 12,000 × ($5.28 - $5) = $3,360 U.b 12,000 × ($5.10 - $4) = $13,200 U.c 12,000 × ($2.30 - $2) = $3,600 U.

======================

• The entire variable production cost variance for units produced can be treated as a period cost and expensed in the period incurred, or it can be prorated between units sold and units still in inventory.

Cost of goods sold xxFixed overhead price variance xxFixed overhead production volume variance xxVariable production cost variances xx

(To close production cost variances to Cost of goods sold; the debits and credits are assumed)




Cost of goods sold xxFinished goods inventory xx

Fixed overhead price variance xxFixed overhead production volume variance xxVariable production cost variances xx

(To close production cost variances to Cost of goods sold and Finished goods inventory; the debits and credits are assumed)

• Using variable costing, the entire fixed production cost is expensed when incurred.

• When standard, full-absorption costing is used and production and sales volumes are not the same, the profit reported will be different from that reported under variable costing (due to the accounting system, not managerial efficiency). Care must be taken to identify the cause of such profit differences.

• Exhibit 17.2 reconciles the reported income statement under full absorption with that under variable costing.

======================

Demonstration Problem 2(Continued from Demonstration Problem 1)

Required:

Reconcile reported income using standard, full-absorption costing with that using standard, variable costing for the Trucks Division of EZ Toys in October.




Solution:

Actual(using

standard, full-absorption

costing)Inventory

adjustment

Actual (using

standard, variable costing)

Sales revenue $150,000 $150,000Less:Variable costs Direct materials (at standard) $50,000 $50,000 Direct labor (at standard) 40,000 40,000 Variable overhead (at standard) 20,000 20,000 Variable production cost variances (net) 20,160a 20,160Less: Fixed overhead 8,000 $(1,600) 9,600 Fixed overhead variance (net) (600) (600)Operating profit $12,440 $(1,600) $10,840

a $3,360 U + $13,200 U + $3,600 U = $20,160 U.

Using variable costing, the entire fixed production cost of $9,000 is expensed in October. Under standard, absorption costing, each truck is allocated fixed production cost of $0.80 (= $9,600 ÷ 12,000 units). A portion of the fixed production cost is allocated to the 2,000 units in ending inventory:$0.80 × 2,000 = $1,600.

Thus, only $7,400 (= $9,000 - $1,600) of the actual fixed production cost are expensed in October under standard, full-absorption costing. This includes $8,000 (= $0.80 × 10,000 units) of fixed production cost in standard cost of goods sold plus a favorable budget variance of $600.

In this case, full-absorption operating profit would be $12,440, or $1,600 higher than variable costing operating profit. The $1,600 difference in profits is due to the accounting system, not because of operating activities.

======================

♦ When the quantities of materials purchased and used are not the same, a purchase price variance based on the quantity of materials purchased can be calculated.

Purchase price variance = (Actual price – Standard price) × Actual quantity purchased.




• The materials efficiency variance remains the same because it is based on materials used.

• One advantage of using a standard costing system is that managers receive information that is useful in making decisions to improve performance.

• The sooner the information is received (such as information about the purchase price variance shortly after the acquisition of materials), the sooner it can be used for decision making purposes.

• If materials are stored, recording the purchase at standard cost provides information on price variances earlier than if the firm waits until the materials are used.

======================

Demonstration Problem 3(Revised from Chapter 16 Demonstration Problem 3)

Information about the use of direct materials at EZ Toys’ Trucks Division for October is as follows:

Standard costs 2 units per truck @ $2.50 per unit = $5 per truckTrucks produced in October = 10,000Actual materials purchased 23,200 units @ $2.40 per unit = $55,680Actual materials used 22,000 units @ $2.40 per unit = $52,800

There was no beginning inventory on October 1.

Required: Prepare the Truck Division’s direct materials variances for October.




Solution:

Actual costs = Actual input quantity at actual input price

$2.40 × 23,200 = $55,680

Actual input quantity at standard input price

$2.50 × 23,200 = $58,000

Flexible production budget = Standard input quantity allowed

for actual output at standard input price

Price Variance $2,320 F

$2.50 × 22,000 = $55,000 $2.50 × 20,000 = $50,000 Efficiency Variance $5,000 U

The price variance is based on the quantities purchased (23,200 units), while the efficiency variance is based on the quantities used (22,000 units vs. 20,000 units allowed under the flexible budget).======================

• The relevant journal entries are

Materials inventory xxMaterial price variance xx

Accounts payable xx

(To record materials purchase and material price variance; Unfavorable variance is assumed).

Work in process inventory xxMaterial efficiency variance

Materials inventory xx

(To record the use of materials and material efficiency variance; Unfavorable variance is assumed).




LO 17-2 Use market share variances to evaluate marketing performance.

♦ The general approach in variance analysis is to separate the variance into components based on a budgeting formula.

• The same idea is applicable to variances in sales activities.

♦ Many companies base an initial sales forecast on an estimate of sales activity in the industry as a whole and on an estimate of the company’s market share.

• There are two reasons why actual sales activity is different from budgeted sales activity:

(1) Actual industry volume was different from budgeted industry volume, and/or

(2) Actual market share was different from budgeted market share.

• Industry volume variance represents the portion of the sales activity variance attributable to changes in industry volume.

• Market share variance represents the portion of the sales activity variance due to changes in the company’s proportion of sales in the markets in which the company operates.

• By decomposing sales activity variance into an industry volume and a market share variance, management has additional information that can be used to make operational improvements next period.

• Multiplying each figure (one from the industry effect, the other from the market share effect) by the standard contribution margin gives the impact of these variances on operating profit. That is,

Industry volume variance

= Standard contribution

margin per unit

× (Actual industry volume – Budgeted industry volume)

× Budgeted market share.

Market share

variance

= Standard contribution

margin per unit

× Actual industry volume

× (Actual market share - Budgeted market share).




Example: Pioneer Uniform, Inc. serves two groups of the customers in the market, Retail and Commercial. The following budget information is available for June.

Customers

Unit contribution

marginSales

volumeSales mix

Commercial $5 40,000 80%Retail 8 10,000 20%

50,000

Since two “products” are offered in the same industry, a composite (weighted-average) standard contribution margin per unit needs to be calculated to determine the industry volume and market share variances later. The weights are based on the standard sales mix.

Composite standard contribution margin per unit = $5 × 80% + $8 × 20% = $5.60.

• The market share variance is usually more controllable by the marketing department and is a measure of its performance.

• The use of the industry volume and market share variances enables management to separate that portion of the activity variance that coincides with changes in the overall industry from that which is specific to the company.

• Exhibit 17.4 illustrates the relation between these two market-related variances.

======================

Demonstration Problem 4(Continued from Demonstration Problem 1)

EZ Toys’ marketing manager estimated the sales of 12,000 trucks in October for the Trucks Division based on an estimated industry volume of 80,000 trucks and on the Trucks Division’s ability to maintain a market share of 15 percent in the past. That is,

80,000 trucks to be sold in the market × 15% of estimated market share = 12,000 trucks.

Due to unexpected shift in demand, the industry volume in toy truck sales dropped to 62,500 units in October while EZ Toys’ Trucks Division managed to sell a total of 10,000 units.




The following information is also available.

Budget dataUnit selling price $14Unit variable cost: Direct materials $5 Direct labor 4 Variable overhead 2Total unit variable costs $11

Required: Prepare October’s industry volume and market share activity variances for the Trucks Division of EZ Toys.

Solution:The Trucks Division’s actual market share for October was 16% (= 10,000 units ÷ 62,500 units).

Industry volume variance ($14 - $11) × (62,500 units – 80,000 units) × 15% = $7,875 UMarket share variance ($14 - $11) × 62,500 units × (16% - 15%) = 1,875 FSales activity variance $6,000 U

======================

LO 17-3 Use sales mix and quantity variances to evaluate marketing performance.

♦ The sales activity variance can be divided into two components: sales mix and sales quantity.

• A sales mix variance arises from the relative proportion of different products sold, holding constant the quantity effects.

Sales mix variance

= Standard contribution margin per unit

× (Actual quantity sold – Quantity that would have been sold at the standard mix).

• A sales mix variance provides useful information for a company that sells multiple products when these products are (imperfect) substitutes for each other.

• The sales mix variance measures the impact of substitution.




• A sales quantity variance occurs in multiproduct companies from the change in volume of sales, independent of any change in sales mix.

Sales quantity variance

= Standard contribution margin per unit

× (Quantity that would have been sold at the standard mix – Budgeted sales quantity).

• The sales quantity variance measures the variance in sales quantity, holding the sales mix constant.

• Although the variances can be calculated for each product sold to show the exact source, the total variance is most frequently used for analysis.

• See Exhibit 17.5 for an example.

======================

Demonstration Problem 5

EZ Toys’ Stuffed Animals Division has two products: Bear and Monkey. Data on the two products for October are as follows.

Bear Monkey TotalStandard selling price $20 $12Standard variable costs 12 8Standard unit contribution margin $8 $4Budgeted sales quantity 2,500 7,500 10,000Budgeted sales mix 25% 75%Budgeted contribution margin $20,000 $30,000 $50,000

Actual sales quantity 3,000 5,000 8,000Actual sales mix 37.5% 62.5%Budgeted contribution margin at actual quantities $24,000a $20,000 $44,000Sales activity variance $6,000 Ub

a $24,000 = $8 × 3,000 units. b $6,000 U = $44,000 - $50,000.

Required: Determine the Stuffed Animals Division’s sales mix and sales quantity variances for

October.




Solution:

For Bear,

Flexible budget(SCMa × AQ)

(SCM x ASQb)

Master budget(SCM × SQ)

$8 × 3,000 = $24,000 $8 × (.25 × 8,000) = $16,000 $8 × 2,500 = $20,000 Mix Variance = $8,000 F Quantity variance = $4,000 U

Activity Variance = $4,000 F

For Monkey,

$4 × 5,000 = $20,000 $4 × (.75 × 8,000) = $24,000 $4 × 7,500 = $30,000 Mix Variance = $4,000 U Quantity variance = $6,000 U

Activity Variance = $10,000 U

For the Stuffed Animals Division as a whole,

$44,000 $40,000 $50,000 Mix Variance = $4,000 F Quantity variance = $10,000 U

Activity Variance = $6,000 U

a SCM = Standard unit contribution margin.b ASQ = Quantity that would have been sold at the standard mix.

======================




LO 17-4 Evaluate production performance using production mix and yield variances.

♦ The analysis of mix and quantity variances for sales can be applied to production as well.

• The direct materials efficiency variance can be divided into two components: mix and yield.

• A production mix variance arises from a change in the relative proportion of inputs (a materials or labor mix variance).

Production mix variance

= Standard input price

× (Actual quantity – Actual input used at the standard mix).

• The production mix variance measures the impact of substitution.

• A production yield variance measures the difference between expected output from a given level of inputs and the actual output obtained from those inputs.

Production yield variance

= Standard input price

× (Actual input used at the standard mix – Standard input allowed).

• The production yield variance measures the input-output relationship holding the standard mix inputs constant.

• By separating the efficiency variance into its mix and yield components, the pure mix effect is isolated by holding constant the yield effect, and the pure yield effect is isolated by holding constant the mix effect.

• See Exhibit 17.6 for an example.

======================


Beautiful Paints Company makes different paints. Its semi-gloss paint product requires two chemical ingredients, X and Y. The standard cost and quantity data follow.

Direct materials

Standard price per

gallon

Standard quantity (gallon) of input per gallon of semi-

gloss paint

Standard cost per gallon of semi-

gloss paintChemical X $8 .5 $4Chemical Y 2 .5 1




During October, Beautiful Paints Company had the following results:

Units produced 20,000 gallons of semi-gloss paintMaterials purchased and usedChemical X 9,800 gallons at $8.20 per gallonChemical Y 10,500 gallons at $2.10 per gallon

Required: Determine the price, mix, and yield variances for Beautiful Paints Company’s semi-gloss paint in October.

Solution:For Chemical X,

Actual(AP × AQ) (SP × AQ) (SP × ASQa)

Flexible budget(SP × SQ)

Purchase price variance Mix variance Yield variance

$8.20 × 9,800 = $80,360 $8 × 9,800 = $78,400 $8 × (.5×20,300) = $81,200 $8 × 10,000 = $80,000

$1,960 U $2,800 F $1,200 U

$1,600 F

For Chemical Y,

$2.10 × 10,500 = $22,050 $2 × 10,500 = $21,000 $2 × (.5×20,300) = $20,300 $2 × 10,000 = $20,000

$1,050 U $700 U $300 U

$1,000 U

For the semi-gloss paint,

$102,410 $99,400 $101,500 $100,000

$3,010 U $2,100 F $1,500 U

$600 F

a ASQ = Quantity that would have been sold at the standard mix.




======================

LO 17-5 Apply the variance analysis model to nonmanufacturing costs.

♦ The comparison of the master budget, the flexible budget, and actual results can also be used in service and merchandising organizations.

• Output is usually defined as sales units in merchandising, but service organizations use other measures, such as professional staff hours (accounting firms), room nights or guests (hotels), seat miles or revenue miles (airlines), and patient days (hospitals).

• Merchandising and service organizations focus on marketing and administrative costs to measure efficiency and control costs.

• The key items to control are labor costs (for service organizations), and occupancy costs per sales dollar (for merchandising organizations).

• The computation of efficiency variance requires a reliable measure of output activity that is linked to input.

• In general, jobs with routine tasks lend themselves to efficiency measures, and jobs with nonroutine tasks do not.

• By substituting different types of labor, service organizations need to calculate labor mix and yield variances.

• Two factors are important when considering mix variances.

(1) There is an assumed substitutability of inputs.

(2) The input costs must be different for a mix variance to exist.





A CPA firm is to perform an audit job for a regular client. Based on past experiences working with the client, 750 partner hours (at a cost of $200 per hour) and 2,250 staff hours (at a cost of $75 per hour) are budgeted for the job.

Due to unforeseen events at the client’s sites, a total of 2,700 hours are used consisting of 900 partner hours and 1,800 staff hours. The hourly rate for partner time is the same as budgeted but the hourly rate for staff time become $100 per hour because more experienced staff members are put to work.

Required: Determine all the variances for the CPA firm on the audit job.

Solution:

Actual(AP × AQ) (SP × AQ) (SP × ASQa)

Flexible budget(SP × SQ)

Labor price variance Mix variance Yield variance

$200 × 900 + $200 × 900 + $200 × 675 + $200 × 750 +$100 × 1,800 = $360,000 $75 × 1,800 = $315,000 $75 × 2,025 = $286,875 $75 × 2,250 = $318,750

$45,000 U $28,125 U $31,875 F

$3,750 F

a ASQ = Labor hours that would have been used at the standard mix. 2,700 × ¼ = 675; 2,700 × ¾ = 2,025.

A total of 3,000 audit hours are budgeted for the job. The standard mix calls for three staff hours for each partner hour performed (2,250 ÷ 750 = 3). The actual audit takes 2,700 hours in which each partner hour is supported by only two staff hours due to staff members’ seniority and experiences.

======================




LO 17-6 Determine which variances to investigate.

♦ Managers and accountants in each organization should perform their own cost-benefit analysis to ascertain which calculations of variances are justified.

• The variances that will be important for a particular company depend on the strategic imperatives for the company.

• Impact represents the likely monetary effect from an activity (such as a variance). The question to ask is, “Does this variance matter?”

• Controllability is the extent to which an item can be managed. The question to ask is, “Can we do something about it?”

• High-impact, highly controllable variances (such as materials and labor efficiency variances) should get the most attention.

• Low-impact, uncontrollable variances should get the least attention.

• The longer the time interval is considered, the greater is the ability to control an item.

♦ After computing variances, managers and accountants must decide which ones to investigate.

• Only the variances for which the benefits of correction exceed the costs of follow-up should be pursued.

• Management by exception is an approach to management requiring that reports emphasize the deviation from an accepted base point, such as a standard, a budget, an industry average, or a prior period experience.

• Some problems are easily corrected as soon as they are discovered. The investigation cost is low and the benefits are very likely to exceed the costs.

• Some variances are not controllable in the short run. Such variances sometimes prompt long-run actions. In such case, the short-run benefits of variance investigation are low, but the long-run benefits could be higher.

• Many variances occur because of errors in recording, bookkeeping adjustments, or timing problems. The accounting staff must carefully check variance reports before sending them to operating managers.

♦ Standards are estimates that require updating to reflect current conditions.




• Variances may occur because conditions change during the year but the standards do not.

• Planned variance is one that is expected to occur if certain conditions affect operations.

• Using a planned variance, the company sends managers the right signal that, for example, the planned unfavorable production volume variance due to long-run excess capacity will not affect the performance evaluation and control activities.

Matching

A. Controllability F. Planned varianceB. Impact G. Production mix varianceC. Industry volume variance H. Production yield varianceD. Management by exception I. Purchase price varianceE. Market share variance J. Sales mix variance

K. Sales quantity variance

_____ 1. The portion of the sales activity variance attributable to changes in industry volume.

_____ 2. An approach to management requiring that reports emphasize the deviation from an accepted base point.

_____ 3. A variance that is expected to occur if certain conditions affect operations.

_____ 4. The likely monetary effect from an activity.

_____ 5. The extent to which an item can be managed.

_____ 6. Measures the difference between expected output from a given level of inputs and the actual output obtained from those inputs.

_____ 7. (Actual price – Standard price) × Actual quantity purchased.

_____ 8. Arises from the relative proportion of different products sold, holding constant the quantity effects.

_____ 9. Arises from a change in the relative proportion of inputs.

_____ 10. Occurs in multiproduct companies from the change in volume of sales, independent of any change in sales mix.




_____ 11. The portion of the sales activity variance due to change in the company’s proportion of sales in the markets in which the company operates.

Answers

1. C

2. D

3. F

4. B

5. A

6. H

7. I

8. J

9. G

10. K

11. E

Multiple Choice

1. Which of the following statements is incorrect?a. The industry volume variance is usually more controllable by the marketing department

and is a measure of its performance.b. The sooner the information is received, the sooner it can be used.c. The materials efficiency variance is the same regardless of whether the quantities of

materials purchased and used are the same.d. Using variable costing, the entire fixed production cost is expensed when incurred.




The following information is for questions 2 – 3.Marketing manager of Jean’s World estimated the sales of 20,000 jeans in August with an industry volume of 200,000 jeans for the month and the standard contribution margin of $6 per jean sold. The actual industry sales figure was around 160,000 jeans out of which Jean’s World sold 18,000 jeans.

2. What is the industry volume variance for the month of August?a. $24,000 F.b. $12,000 F.c. $24,000 U.d. $28,000 U.

3. What is the market share variance for the month of August?

a. $24,000 Ub. $12,000 U.c. $18,000 F.d. $12,000 F.

4. Which of the following statements is incorrect?a. The sales mix variance measures the impact of substitution.b. The sales quantity variance measures the variance in sales quantity, holding the sales mix

constant.c. The sales activity variance can be divided into two components: sales mix and market

share.d. A sales mix variance provides useful information for a company that sells multiple

products

The following information is for questions 5 – 6.Toy Kingdom sells two similar products: Big Bear and Little Bear. Data on the two products for October are as follows.

Big Bear Little BearStandard unit contribution margin $8 $4Budgeted sales quantity 2,000 8,000Actual sales quantity 2,500 7,500

5. What is Little Bear’s sales mix variance?a. $0.b. $1,000 Fc. $2,000 U.d. $2,400 U.




6. What is Big Bear’s sales quantity variance?a. $0.b. $1,000 F.c. $2,000 U.d. $2,400 U.

The following information is for questions 7 – 8.Home Lab supplies chemical solutions for high school labs. Its Coloration Kit uses two inputs, A and B, during production. The standard cost and quantity data follow.

Direct materials

Standard price per

gallon

Standard quantity (gallon) of input per gallon of

Coloration KitChemical A $10 .4Chemical B 4 .6

During February, the following results were available:

Units produced 10,000 gallons of Coloration KitMaterials purchased and usedChemical A 4,200 gallons at $10.10 per gallonChemical B 5,900 gallons at $3.80 per gallon

7. What is the production mix variance for Chemical A?a. $240 U.b. $1,600 U.c. $1,180 F.d. $420 U.

8. What is the production yield variance for Chemical B?a. $1,600 U.b. $240 U.c. $1,180 F.d. $420 U.

9. Which of the following statements is correct?a. The computation of efficiency variance requires a reliable measure of output activity that

is linked to input. b. By substituting different types of labor, service organizations calculate labor price

variance.c. In general, jobs with nonroutine tasks lend themselves to efficiency measures




d. Merchandising organizations focus on Cost of goods sold to measure efficiency and control costs.

10. Which of the following statements is incorrect?a. Standards are estimates that require updating to reflect current conditions.b. The issue of impact asks the question, “Can we do something about it?”c. Only the variances for which the benefits of correction exceed the costs of follow-up

should be investigated.d. Many variances occur because of errors in recording, bookkeeping adjustments, or timing

problems.

11. The following budget information is available for September.

Products

Unit contribution

marginSales

volumeStandard Set $6 50,000Deluxe Set 10 30,000

80,000

What is the composite contribution margin per unit?a. $8.40.b. $7.50.c. $7.20.d. $6.80.

12. Which of the following statements is incorrect?a. Management by exception emphasizes materiality.b. The shorter the time interval, the greater is the ability to control an item.c. Most variances are controllable in the long run.d. Planned variance is one that is expected to occur if certain conditions affection

operations.




Answers

1. a LO1, LO2

2. c LO2

Estimated market share = 20,000 jeans ÷ 200,000 jeans = 10%.$6 × (160,000 – 200,000) × 10% = $24,000 U.

3. d LO2

Actual market share = 18,000 jeans ÷ 160,000 jeans = 11.25%.$6 × 160,000 × (11.25% - 10%) = $12,000 F.

4. c LO3

5. c LO3

Standard sales mix = 8,000 units ÷ (2,000 units + 8,000 units) = 80%.$4 × (7,500 – (0.8 × 10,000)) = $2,000 U.

6. a LO3

Standard sales mix = 2,000 units ÷ (2,000 units + 8,000 units) = 20%.$8 × ((0.2 × 10,000) – 2,000) = $0.

7. b LO4

Total quantity purchased = 4,200 gallons + 5,900 gallons = 10,100 gallons.$10 × (4,200 – 0.4 × 10,100) = $1,600 U.

8. b LO4

$4 × (0.6 × 10,100 – 0.6 × 10,000) = $240 U.

9. a LO5

10. b LO6

11. b LO2

Standard Set represents 62.5% (= 50,000 ÷ 80,000) of the sales; Deluxe Set the rest 37.5%. $6 × 62.5% + $10 × 37.5% = $7.50.




12. b LO6



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