Carad Co. is an electronics company which makes two types of televisions – plasma screen TVs and LCD TVs. It operates within a highly competitive market and is constantly under pressure to reduce prices and develop new products. Carad Co. operates a standard costing system and performs a detailed variance analysis of both products on a monthly basis. Extracts from the management information for the month of November are shown below: Note Total number of units made and sold 1,400 1 Material price variance $28,000 A 2 Notes. (1) The budgeted total sales volume for TVs was 1,180 units, consisting of an equal mix of plasma screen TVs and LCD screen TVs. Actual sales volume was 750 plasma TVs and 650 LCD TVs. Standard sales prices are $350 per unit for the plasma TVs and $300 per unit for the LCD TVs. The actual sales prices achieved during November were $330 per unit for plasma TVs and $290 per unit for LCD TVs. The standard contributions for plasma TVs and LCD TVs are $190 and $180 per unit respectively. (2) The sole reason for this variance was an increase in the purchase price of one of its key components, X. Each plasma TV made and each LCD TV made requires one unit of component X, for which Carad Co’s standard cost is $60 per unit. Due to a shortage of components in the market place, the market price for November went up to $85 per unit for X. Carad Co actually paid $80 per unit for it. Required (a) Calculate the following for the month of November, showing all workings clearly: (i) The sales volume contribution variance, the sales mix variance and the sales quantity variance. (ii) The material price planning variance and material price operational variance. (b) Explain the reasons why Carad Co would be interested in the material price planning variance and the material price operational variance.
Carad Co. is an electronics company which makes two types of televisions – plasma screen
TVs and LCD TVs. It operates within a highly competitive market and is constantly under
pressure to reduce prices and develop new products. Carad Co. operates a standard costing
system and performs a detailed
Extracts from the management information for the month of November are shown below:
Note
Total number of units made and sold 1,400 1
Material price variance $28,000 A 2
Notes.
(1) The budgeted total sales volume for TVs was 1,180 units, consisting of an equal mix
of plasma screen TVs and LCD screen TVs. Actual sales volume was 750 plasma
TVs and 650 LCD TVs. Standard sales prices are $350 per unit for the plasma TVs
and $300 per unit for the LCD TVs. The actual sales prices achieved during
November were $330 per unit for plasma TVs and $290 per unit for LCD TVs. The
standard contributions for plasma TVs and LCD TVs are $190 and $180 per unit
respectively.
(2) The sole reason for this variance was an increase in the purchase price of one of its
key components, X. Each plasma TV made and each LCD TV made requires one unit
of component X, for which Carad Co’s standard cost is $60 per unit. Due to a
shortage of components in the market place, the market price for November went up
to $85 per unit for X. Carad Co actually paid $80 per unit for it.
Required
(a) Calculate the following for the month of November, showing all workings clearly:
(i) The sales volume contribution variance, the sales mix variance and the sales
quantity variance.
(ii) The material price planning variance and material price operational variance.
(b) Explain the reasons why Carad Co would be interested in the material price planning
variance and the material price operational variance.
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(b) Explain the reasons why Carad Co would be interested in the material price planning variance and the material price operational variance.
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