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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	108,800	$25
Product S	161,700	20
Product T	23,700	20

At the end of the year, actual sales revenue for Product R and Product S was $2,580,600 and $3,296,500, respectively. The actual price charged for Product R was $23 and for Product S was $19. Only $9 was charged for Product T to encourage more consumers to buy it, and actual sales revenue equaled $565,650 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	$		$
Product S	$		$
Product T	$		$

2. Suppose that Product T is a new product just introduced during the year. What pricing strategy is Eastman, Inc., following for this product?

Answer 1

	Sales Price Variance	Sales Volume Variance
Product R	224400 UF	85000F
Product S	173500UF	236000F
Product T	691350 UF	783000F

Detail working for your easy understanding

Sales Price Variance= (Actual price-Budgeted Price) X Actual Quantity Sold

Product R= (23-25)X 112200 =$224400 UF

Actual Quantity Sold= 2580600/23=112200 Unit

Product S= (19-20)X 173500 =$173500 UF

Actual Quantity Sold= 3296500/19=173500 Unit

Product T= (9-20)X 62850 =$691350 UF

Actual Quantity Sold= 565650/9=62850 Unit

Sales Volume Variance=( Actual Sales Quantity- Budgeted Sales Quantity)X Budgeted Price

Product R= ( 112200-108800)X25=$85000 F

Product S= ( 173500-161700)X20=$236000 F

Product R= ( 62850-23700)X20=$783000 F

Part-2

Penetration pricing Policy to be followed for Product T