Comparative Income Statements and Sales Performance Variances; Current to Prior Year...

Comparative Income Statements and Sales Performance Variances; Current to Prior Year Green Grow Inc. manufactures riding lawn mowers that it sells to the large discount stores such as Walmart, Lowes, and Home Depot. The mowers are marketed as a “value” product, with good quality at a very good price. The company’s two products are the Quality mower, which in 2012 sold for $1,200 (the discounters retailed it for $1,500), and the Heavy Duty model, which Green Grow Inc. sold for $1,600 (and was retailed for $2,200). At the end of 2012, the company has come under increased price competition from other manufacturers. The company believes it must reduce its price in 2013 on both products to keep its current market share with sales of 3,500 units. The unit variable costs for the Quality product are $800 and $950 for the Heavy Duty product. Management does not believe it can reduce these variable costs for the coming year but will begin to study ways to do so for 2014. In the meantime, the company management believes it can maintain its total market share by increasing its advertising expenses by $150,000 and cutting the price on both models by 10%. Fixed costs were $550,000 in 2012 and are not expected to change in 2013, with the exception of the increase in advertising. In 2012 the sales mix was 40% for Quality and 60% for Heavy Duty, respectively. In 2013, the sales mix was 50% for Quality and 50% for Heavy Duty, respectively.

Required

1. Calculate a comparative contribution income statement for Green Grow Inc. for 2013 that shows the volume and selling price variances for each product based on contribution margin. ( Hint: Use Exhibit 16.15 as an example.)

2. Determine the sales mix variance and the sales quantity variance for each product, based on contribution margin.

3. Did the price change and increase in advertising have the expected results? Why or why not?

4. What methods should Green Grow Inc. adopt to become more competitive in 2013 and 2014?

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