Question

Peninsula Candy Company makes three types of candy bars: Chewy, Chunky, and Choco-Lite (Lite). Sales volume for the annual budget is determined by estimating the total market volume for candy bars and then applying the company's prior year market share, adjusted for planned changes due to company programs for the coming year. Volume is apportioned among the three bars based on the prior year's product mix, again adjusted for planned changes for the coming year.

The following are the company budget and the results of operations for July.

 

Budget	Chewy						Chunky						Choco-Lite						Total
Sales-units (in thousands)	2,000 bars						2,000 bars						4,000 bars						8,000 bars
Sales-dollars (in thousands)		$	240					$	360					$	720					$	1,320
Variable costs			180						300						560						1,040
Contribution margin		$	60					$	60					$	160					$	280
Manufacturing fixed cost			40						38						60						138
Product margin		$	20					$	22					$	100					$	142
Marketing and administrative costs (all fixed)																					55
Operating profit																				$	87
Actual	Chewy					Chunky							Choco-Lite						Total
Sales-units (in thousands)	1,700 bars						2,000 bars						4,100 bars						7,800 bars
Sales-dollars (in thousands)		$	102					$	360					$	720					$	1,182
Variable costs			58						304						564						926
Contribution margin		$	44					$	56					$	156					$	256
Manufacturing fixed cost			38						39						59						136
Product margin		$	6					$	17					$	97					$	120
Marketing and administrative costs (all fixed)																					44
Operating profit																				$	76

 

Industry volume was estimated at 96.5 million bars for budgeting purposes. Actual industry volume for July was 89.745 million bars.

Required:

a. Determine the sales price and sales activity variances.

b. Break down the sales activity variance into the parts caused by industry volume and market share.

Answer 1

step 1) 1,700* (180/2,000)+ 2,000* (300/2,000)+ 4,100* (560/4,000)= 1,027

step 2) budget chart   60/2,000= 0.03     160/4,000= 0.04

Step 3) 1,182- 1,027= 155

(1,700*0.03)+ (2,000*0.03)+ (4,100*0.04)= 275

1,320- 1,040= 280

part A answer) sales price variance   155- 275= 120 U

sales activity variance  275-280= 5 U

part B Step 1) 7,800* (280/8,000)= 273

280* (89,745/ 96,500)= 260.4

market share variance 273- 260.4= 12.6 F

275(from part A)- 260.4= 14.6 F

12.6 or 14.6

Industry variance: 260.4- 280= 19.6 U