Question

Quill Pen Company manufactures two lines of pens: super and executive. Budgeted and actual contribution margin statements follow: Quill Pen Company Budget and actual contribution statements for the year ended 31 December (in '000s) Budget Actual Total Super 150 $900 450 $450 Executive Total Super 130 $780 390 $390 Executive Unit sales Sales revenue Variable expenses Contribution margin Fixed expenses 100 $1000 750 250 250 $1900 1200 700 130 $1 235 975 S 260 260 $2015 1365 650 S 190 140 90 $ 420 230 Manufacturing S 200 Marketing Administration Total fixed expenses Profit before taxes S 448 $ 252 quired 1. The budgeted total volume of 250 000 units was based on the company achieving a market share of 20 per cent. Actual industry volume reached 1 290 000 units. Calculate the portion of Quill's increased volume resulting from improved market share 2. Calculate the variance of actual contribution margin from budgeted contribution margin attributable to the sales price. Indicate whether the variance is favourable or unfavourable. (Hint: Add the sales price variances calculated for each product line.) Calculate the variance of actual contribution margin from budgeted contribution margin attributable to unit variable cost changes. For each product, indicate whether the variance is favourable or unfavourable 3. 4. Provide a reconciliation that explains the source of differences between actual contribution margin and budgeted contribution margin. (Hint: List variances that explain the difference.)

Answer 1

ANSWER:

• 1. Increased volume resulting from improved market share

Actual industry volume = 1290000 units

Quill's portion in industry volume @20% = 1290000*20% = 258000 units

Budgeted total volume = 250000 units

Increased volume in Quill's portion resulting from improved market share = 258000-250000= 8000 units

2. Contribution Margin variance attributable to the sale price

Sale price variance = Actual Sales Quantity*Actual price - Actual Sales Quantity*Budgeted price

Particulars	Super	Executive
Actual Sales Quantity (A)	130	130
Actual Price (B)	780/130 = 6	1235/130 = 9.5
Budgeted price (C)	900/150 = 6	1000/100= 10
Sale price variance (A*B-A*C)	0	65 (U)
3.contribution margin variance attributable to unit variable cost change
Particulars	Super	Executive
Budgeted Quantity (A)	150	100
Budgeted variable cost	450	750
Budgeted unit variable cost (C)	3	7.5
Actual Quantity (B)	130	130
Unit variable cost variance (B-A)*C	60 (U)	225 (F)
Particulars	Super	Executive
Budgeted Contribution (A)	450	250
Actual Contribution (B)	390	260
Contribution Margin Variance (C=B-A)	60 (U)	10 (F)
Sale Price Variance (D- See 2 above)	0	65 (U)
Unit Variable Cost variance (E- See 3 above)	60 (U)	225 (F)
Sale Volume Variance (F- note below)	120 (U)	300 (F)
Total Variance (D-E+F)	60 (U)	10 (F)

Particulars	Super	Executive
Actual Sales Quantity (A)	130	130
Budgeted Sales Quantity (B)	150	100
Budgeted price (C)	900/150 = 6	1000/100= 10
Sale volume variance (A-B)*C	120 (U)	300 (F)

Note: Sale volume variance = (actual sales volume – budgeted sales volume)* budgeted price