Question

The Fortise Corporation manufactures two types of vacuum cleaners, the Victor for commercial building use and the House - Mate for residences. Budgeted and actual operating data for the year 2017 were as follows: Static Budget Victor House-Mate Total Number sold 6,000 24,000 30,000 Contribution margin $1,560,000 $3,120,000 $4,680,000 Actual Results Victor House-Mate Total Number sold 5,300 35,000 40,300 Contribution margin $1,400,000 $4,130,000 $5,530,000 What is the total sales - quantity variance in terms of the contribution margin? (Round any intermediary calculations two decimal places.) O A. $1,606,800 favorable OB. $1,606,800 unfavorable OC. $1,071,200 unfavorable OD. $535,600 favorable

Answer 1

Solution: The answer is A. $1,606,800 favourable.

Explanation: Calculate the sales quantity variance

Sales quantity variance shall be calculated as follows:

Step 1: Calculate the standard mix ratio:

For Victor = 6,000 / 30,000 = 20%

For House-mate = 24,000 / 30,000 = 80%

Step 2: Calculate the sales quantities in proportion to the standard mix:

The objective is to find the respective sales quantities of products as if the total sales during the period where distributed among the two products in proportion to their standard mix.

Total sales during the period = 5,300 Victor + 35,000 House-mate = 40,300 units

Unit Sales at Standard Mix:

Sales of Victor in standard mix @ 20% of 40,300 = 8,060 units

Sales of House-mate in standard mix @ 80% of 40,300 = 32,240 units

Step 3: Calculate the difference between budgeted sales quantities and the sales quantities in standard mix

	Victor Units	House-mate Units
Budgeted sales quantities (as per question)	6,000	24,000
Unit sales at standard mix (Step 2)	(8,060)	(32,240)
Difference	2,060 Favorable	8,240 Favorable

Step 4: Calculate the standard contribution per unit

Standard contribution per unit = Total contribution / Budgeted sales unit

Victor = $1,560,000 / 6,000 = $260

House-mate = $3,120,000 / 24,000 = $130

Step 5: Calculate the variance for each product

	Victor	House-mate
Standard contribution per unit (Step 4)	$260	$130
Budgeted Sales - Sales in Standard mix (Step 3)	x 2,060 units	x 8,240 units
Variance	$535,600 Favorable	$1,071,200 Favorable

Step 6: Add the individual variances

Sales Quantity Variance   =   $535,600 + $1,071,200 = $1,606,800 Favorable

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