Question

Elsworth Inc. manufactures and sells two fruit drinks: Kostor and Limba. Budgeted and actual results for 2017 are as follows: (Click the icon to view the budgeted and actual results.) Read the requirements Requirement 1. Compute the total sales volume variance, the total sales-mix variance, and the total sales-quantity variance (Calculate all variances in terms of contribution margin.) Show results for each product in your computations, Begin by completing the following table to determine the budgeted contribution margin per unit, sales mix and contribution margin. (Enter all dollar values to the nearest cent and sales mix as whole percentages.) Budget for 2017 Contribution Margin per Unit Sales Volume in Units Sales Mix (Based on Units) Contribution Margin Kostor % Limba % Total % Data Table Requirements Budget for 2017 Actual for 2017 Selling Variable Cost Cartons Selling Variable Cost Cartons Product Price per Carton Sold Price per Carton Sold Kostor $15.00 S 10.50 147.000 S 15.45 S 11.15 151,200 Limba $ 16.00 S 63,000 S 17.30 S 8.45 37.800 Compute the total sales-volume variance, the total sales-mix variance, and the total sales-quantity variance. (Calculate all variances in terms of contribution margin.) Show results for each product in your computations. What inferences can you draw from the variances computed in requirement 1? 2. Print Dane Print Done

Answer 1

Requirement 1

Part 1

Sales Volume Variance in terms of Contribution Margin = Budgeted Margin * (Actual Sales Quantity - Budgeted Sales Quantity)

Budgeted Margin per Unit = Budgeted Price per Unit - Standard Cost per Unit

For Kostor Budgeted Contribution Margin = 15 - 10.50 = $ 4.50 per Unit

For Limba Budgeted Contribution Margin = 16 - 8.50 = $ 7.50 per Unit

For Kostor

Sales Volume Variance = 4.50 * (151,200 - 147,000)

Sales Volume Variance = $ 18,900 Favourable Variance

For Limba

Sales Volume Variance = 7.5 * (37,800 - 63,000)

Sales Volume Variance = ($ 189,000) Unfavorable Variance

Total Sales Volume Variance = 18,900 + (189,000)

Total Sales Volume Variance = $ 170,100 Unfavorable Variance

Part 2

Formula for Sales Mix Variance in terms of Contribution Margin = Budgeted Margin * (Actual Sales Quantity - Revised Actual Sales Quantity)

Budgeted Margin has already been calculated.

Revised Actual Quantity means to distribute Actual Quantity Sold in the ratio of the Standard Sales Quantity

Kostor : Limba = 7:3

For Every 10 Units Sold 7 Units of Kostor are sold and 3 of Limba are sold

Revised Actual Quantity for Kostor = 189,000 * 7/10 = 132,300 Units

Revised Actual Quantity for Limba = 189,000 * 3/10 = 56,700 Units

For Kostor

Sales Mix Variance = (151,200 - 132,300) * 4.50

Sales Mix Variance = $ 85,050 Favourable Variance

For Limba

Sales Mix Variance = (37,800 - 56,700) * 7.50

Sales Mix Variance = ($ 141,750) Unfavorable Variance

Total Sales Mix Variance = 85,050 - 141,750

Total Sales Mix Variance = $ 56,700 Unfavorable Variance

Part 3

Sales Quantity Variance in terms of Contribution Margin = Budgeted Margin * (Revised Actual Sales Quantity - Budgeted Sales Quantity)

For Kostor

Sales Quantity Variance = 4.50 * (132,300 - 147,000)

Sales Quantity Variance = ($ 66,150) Unfavorable Variance

For Limba

Sales Quantity Variance = 7.50 * (56,700 - 63,000)

Sales Quantity Variance = ($ 47,250) Unfavorable Variance

Total Sales Quantity Variance = 66,150 + 47,250

Total Sales Quantity Variance = $ 113,400 Unfavorable Variance

Requirement 2

All the variances Calculated above shows that the company has not been able to sell their products in the proportion they would have like due to which there is a large amount of sales volume variance. The reason for the variance is that the company has planned to sale 3 Units of Limba for every 7 Units of Kostor whereas in fact the actual 2 Units of Limba were sold for 8 Units of Kostor due to which there is a major variance of 10% in the sales level and as a result company has to face variances.

Note

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