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
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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 | |||||
| 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.
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