Question

The new sales manager believed that he could have talked a major customer of Mint Chill into accepting a smaller discount resulting in the overall actual price/block for Mint Chill increasing by 50 cents. There would be no effect on sales volume. i. What would be the effect on the selling price variance for Mint Chill if the actual results shown above were changed due to the sales manager’s work with the major customer? ii. What would be the effect on the sales mix variance for Mint Chill if the actual results shown above were changed due to the sales manager’s work with the major customer?

BCF forecasts a 25% market share of total 1kg blocks of chocolate sold in Otago in December 2019 in Springfield. Reliable industry sources indicate that the total number of 1kg blocks of chocolate sold for December 2019 in Otago was 12.5% higher than budgeted. Exhibit 1 Budgeted and actual data for December 2019 Budgeted Data Actual Data Mint Rich Dark Chill Cranberry Vintage Mint Chill Cranberry Vintage Rich Dark 1kg Blocks 7,200 4,800 4,000 10,800 3,600 7,200 Contribution Margin $18,000 $19,200 $20,000 $21,600 $10,800 $54,000

Answer 1

Requirement i To compute selling price variance, first we need to compute Contribution margin per unit sold. Units Total Contribution margin (A) Contribution margin p.u (A/B) (B) $ Budgeted Data Rich Dark Mint Chill Cranberry Vintage 18,000 19,200 20,000 7200 4800 4000 $ $ $ 2.50 4.00 5.00 Actual Data Rich Dark Mint Chill Cranberry Vintage $ $ $ 21,600 10,800 54,000 10800 3600 7200 $ $ $ 2.00 3.00 7.50 Computation of Selling Price Variance Before Reducing Discount Actual Qty sold * ( Budgeted CM Rich Dark 10800 * $ 2.50 Mint Chill 3600 *($ 4.00 Cranberry Vintage 7200 *($ 5.00 Total Actual CM ) = Selling Price Variance $ 2.00 ) = $ 5,400 u $ 3.00 ) = $ 3,600 U $ 7.50 = $ 18,000 F $ 9,000 F Computation of Selling Price Variance After Reducing Discount Actual Qty sold *( Budgeted CM Rich Dark 10800 *($ 2.50 Mint Chill 3600 *($ 4.00 Cranberry Vintage 7200 *( $ 5.00 Total Actual CM ) = Selling Price Variance $ 2.00 ) = $5,400 U $ 3.50 ) = $ 1,800 U $ 7.50 $ 18,000 F $ 0,8 F = Note- The Actual Contribution margin p.u for Mint Chill is increased by $0.50 due to discount reduction. Conclusion The Selling price variance improved by 20% (1800/9000) due to discount reduction of $0.50 in Mint Chills. Requirement ii Any changes in Actual contribution margin shall not affect the sales mix variance. Hence, there would be no change in sales mix variance as there is no change in sales volume due to discount reduction.