Prepare a comparative contribution income statement for Incorporation C for the current year that shows the sales volume and selling price variance for each product.

Question

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Answer 1

Question

Chapter 16, Problem 56P

1

To determine

Prepare a comparative contribution income statement for Incorporation C for the current year that shows the sales volume and selling price variance for each product.

1

Expert Solution

Explanation of Solution

Prepare a comparative contribution income statement for Incorporation C:

	Current year	Sales price variance	Flexible budget	Sales volume variance	Prior Year
Sales
Half inch Model	$43,200	($7,200)	$50,400	$23,100	$27,300
One inch Model	$129,600	$14,400	$115,200	($30,400)	$145,600
	$172,800	$7,200	$165,600	($7,300)	$172,900
Less: Variable Costs
Half inch Model	$21,600		$21,600	$9,900	$11,700
One inch Model	$28,800		$28,800	($7,600)	$36,400
Contribution	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000				$35,000
Operating Income	$87,400				$89,800

Contribution Margin By Product:
Half inch Model	$21,600		$28,800	$13,200	$15,600
One inch Model	$100,800		$86,400	($22,800)	$109,200
Total contribution Margin	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000		$35,000		$35,000
Operating Income	$87,400		$80,200		$89,800

Table (1)

Calculate the sales volume variance:

Product	Calculation	Result
Half Inch	[(0.3 × 6,5 00) – (0.5 × 7,200)] × ($14 − $6)	$13,500 (F)
One Inch	[(0.7 × 6,500) – (0.5 × 7,200)] × ($32 − $8)	$22,800 (U)

Table (2)

Calculate the selling price variance:

Product	Calculation	Result
Half Inch	(0.5 × 7,200) × ($14 − $12)	$7,200 (U)
One Inch	(0.5 × 7,200) × ($36 − $32)	$14,400 (F)

Table (3)

2

To determine

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

2

Expert Solution

Explanation of Solution

Compute the sales mix variance:

Product	Calculation	Result
Half Inch	(0.5 − 0.3) × 7,200 × ($14 − $6)	$11,520 (F)
One Inch	(0.5 − 0.7) × 7,200 × ($32 − $8)	$14,400 (F)

Table (4)

Compute the sales Quantity variance:

Product	Calculation	Result
Half Inch	(7,200 – 6,500) × 0.3 × ($14 − $6)	$1,680 (F)
One Inch	(7,200 – 6,500) × 0.7 × ($32 − $8)	$11,760 (F)

Table (5)

3

To determine

Identify whether the price change have the expected results. Explain the reasons.

3

Expert Solution

Explanation of Solution

The sales strategy of reducing the price on the half-inch model was a success in sales volume as sales units improved from 1,950(0.3 × 6,500) to 3,600(0.5 × 7,200), an increase of 1,650 units. The selling price variance was unfavorable due to the price change, a loss of $7,200($2 price change × 3,600 units), however the sales volume variance for the product, depending on sales, was favorable, at $23,100(1,650 units × $14), for a net positive impact on sales for the half-inch model of $15,900($23,100 − $7,200).

The strategy of increasing price on the one-inch model could have resulted the drop in sales of 950 units (0.7 × 6,500 − 0.5 × 7,200), however it produced a favorable selling price variance of $14,400, with an unfavorable sales volume variance of $30,400(950 × $32), depending on sales, for a net decline of $16,000 in sales dollars.

The impact of the raised sales volume on variable costs was $9,900(1,650 × $6) for the raised sales of the half inch model. The decreased variable costs due to the reduced sales of the one-inch model was 950 × $8 = $7,600.

The net effect on operating income of the sales strategies was unfavorable at $2,400($89,800 − $87,400). The net improvement in the half-inch model of $6,000($13,200 − $7,200) was offset by the loss of $8,400($22,800 − $14,400) on the one-inch model.

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Answer 2

Question

Chapter 16, Problem 56P

1

To determine

Prepare a comparative contribution income statement for Incorporation C for the current year that shows the sales volume and selling price variance for each product.

1

Expert Solution

Explanation of Solution

Prepare a comparative contribution income statement for Incorporation C:

	Current year	Sales price variance	Flexible budget	Sales volume variance	Prior Year
Sales
Half inch Model	$43,200	($7,200)	$50,400	$23,100	$27,300
One inch Model	$129,600	$14,400	$115,200	($30,400)	$145,600
	$172,800	$7,200	$165,600	($7,300)	$172,900
Less: Variable Costs
Half inch Model	$21,600		$21,600	$9,900	$11,700
One inch Model	$28,800		$28,800	($7,600)	$36,400
Contribution	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000				$35,000
Operating Income	$87,400				$89,800

Contribution Margin By Product:
Half inch Model	$21,600		$28,800	$13,200	$15,600
One inch Model	$100,800		$86,400	($22,800)	$109,200
Total contribution Margin	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000		$35,000		$35,000
Operating Income	$87,400		$80,200		$89,800

Table (1)

Calculate the sales volume variance:

Product	Calculation	Result
Half Inch	[(0.3 × 6,5 00) – (0.5 × 7,200)] × ($14 − $6)	$13,500 (F)
One Inch	[(0.7 × 6,500) – (0.5 × 7,200)] × ($32 − $8)	$22,800 (U)

Table (2)

Calculate the selling price variance:

Product	Calculation	Result
Half Inch	(0.5 × 7,200) × ($14 − $12)	$7,200 (U)
One Inch	(0.5 × 7,200) × ($36 − $32)	$14,400 (F)

Table (3)

2

To determine

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

2

Expert Solution

Explanation of Solution

Compute the sales mix variance:

Product	Calculation	Result
Half Inch	(0.5 − 0.3) × 7,200 × ($14 − $6)	$11,520 (F)
One Inch	(0.5 − 0.7) × 7,200 × ($32 − $8)	$14,400 (F)

Table (4)

Compute the sales Quantity variance:

Product	Calculation	Result
Half Inch	(7,200 – 6,500) × 0.3 × ($14 − $6)	$1,680 (F)
One Inch	(7,200 – 6,500) × 0.7 × ($32 − $8)	$11,760 (F)

Table (5)

3

To determine

Identify whether the price change have the expected results. Explain the reasons.

3

Expert Solution

Explanation of Solution

The sales strategy of reducing the price on the half-inch model was a success in sales volume as sales units improved from 1,950(0.3 × 6,500) to 3,600(0.5 × 7,200), an increase of 1,650 units. The selling price variance was unfavorable due to the price change, a loss of $7,200($2 price change × 3,600 units), however the sales volume variance for the product, depending on sales, was favorable, at $23,100(1,650 units × $14), for a net positive impact on sales for the half-inch model of $15,900($23,100 − $7,200).

The strategy of increasing price on the one-inch model could have resulted the drop in sales of 950 units (0.7 × 6,500 − 0.5 × 7,200), however it produced a favorable selling price variance of $14,400, with an unfavorable sales volume variance of $30,400(950 × $32), depending on sales, for a net decline of $16,000 in sales dollars.

The impact of the raised sales volume on variable costs was $9,900(1,650 × $6) for the raised sales of the half inch model. The decreased variable costs due to the reduced sales of the one-inch model was 950 × $8 = $7,600.

The net effect on operating income of the sales strategies was unfavorable at $2,400($89,800 − $87,400). The net improvement in the half-inch model of $6,000($13,200 − $7,200) was offset by the loss of $8,400($22,800 − $14,400) on the one-inch model.

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Answer 3

Question

Chapter 16, Problem 56P

1

To determine

Prepare a comparative contribution income statement for Incorporation C for the current year that shows the sales volume and selling price variance for each product.

1

Expert Solution

Explanation of Solution

Prepare a comparative contribution income statement for Incorporation C:

	Current year	Sales price variance	Flexible budget	Sales volume variance	Prior Year
Sales
Half inch Model	$43,200	($7,200)	$50,400	$23,100	$27,300
One inch Model	$129,600	$14,400	$115,200	($30,400)	$145,600
	$172,800	$7,200	$165,600	($7,300)	$172,900
Less: Variable Costs
Half inch Model	$21,600		$21,600	$9,900	$11,700
One inch Model	$28,800		$28,800	($7,600)	$36,400
Contribution	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000				$35,000
Operating Income	$87,400				$89,800

Contribution Margin By Product:
Half inch Model	$21,600		$28,800	$13,200	$15,600
One inch Model	$100,800		$86,400	($22,800)	$109,200
Total contribution Margin	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000		$35,000		$35,000
Operating Income	$87,400		$80,200		$89,800

Table (1)

Calculate the sales volume variance:

Product	Calculation	Result
Half Inch	[(0.3 × 6,5 00) – (0.5 × 7,200)] × ($14 − $6)	$13,500 (F)
One Inch	[(0.7 × 6,500) – (0.5 × 7,200)] × ($32 − $8)	$22,800 (U)

Table (2)

Calculate the selling price variance:

Product	Calculation	Result
Half Inch	(0.5 × 7,200) × ($14 − $12)	$7,200 (U)
One Inch	(0.5 × 7,200) × ($36 − $32)	$14,400 (F)

Table (3)

2

To determine

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

2

Expert Solution

Explanation of Solution

Compute the sales mix variance:

Product	Calculation	Result
Half Inch	(0.5 − 0.3) × 7,200 × ($14 − $6)	$11,520 (F)
One Inch	(0.5 − 0.7) × 7,200 × ($32 − $8)	$14,400 (F)

Table (4)

Compute the sales Quantity variance:

Product	Calculation	Result
Half Inch	(7,200 – 6,500) × 0.3 × ($14 − $6)	$1,680 (F)
One Inch	(7,200 – 6,500) × 0.7 × ($32 − $8)	$11,760 (F)

Table (5)

3

To determine

Identify whether the price change have the expected results. Explain the reasons.

3

Expert Solution

Explanation of Solution

The sales strategy of reducing the price on the half-inch model was a success in sales volume as sales units improved from 1,950(0.3 × 6,500) to 3,600(0.5 × 7,200), an increase of 1,650 units. The selling price variance was unfavorable due to the price change, a loss of $7,200($2 price change × 3,600 units), however the sales volume variance for the product, depending on sales, was favorable, at $23,100(1,650 units × $14), for a net positive impact on sales for the half-inch model of $15,900($23,100 − $7,200).

The strategy of increasing price on the one-inch model could have resulted the drop in sales of 950 units (0.7 × 6,500 − 0.5 × 7,200), however it produced a favorable selling price variance of $14,400, with an unfavorable sales volume variance of $30,400(950 × $32), depending on sales, for a net decline of $16,000 in sales dollars.

The impact of the raised sales volume on variable costs was $9,900(1,650 × $6) for the raised sales of the half inch model. The decreased variable costs due to the reduced sales of the one-inch model was 950 × $8 = $7,600.

The net effect on operating income of the sales strategies was unfavorable at $2,400($89,800 − $87,400). The net improvement in the half-inch model of $6,000($13,200 − $7,200) was offset by the loss of $8,400($22,800 − $14,400) on the one-inch model.

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Answer 4

Question

Chapter 16, Problem 56P

1

To determine

Prepare a comparative contribution income statement for Incorporation C for the current year that shows the sales volume and selling price variance for each product.

1

Expert Solution

Explanation of Solution

Prepare a comparative contribution income statement for Incorporation C:

	Current year	Sales price variance	Flexible budget	Sales volume variance	Prior Year
Sales
Half inch Model	$43,200	($7,200)	$50,400	$23,100	$27,300
One inch Model	$129,600	$14,400	$115,200	($30,400)	$145,600
	$172,800	$7,200	$165,600	($7,300)	$172,900
Less: Variable Costs
Half inch Model	$21,600		$21,600	$9,900	$11,700
One inch Model	$28,800		$28,800	($7,600)	$36,400
Contribution	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000				$35,000
Operating Income	$87,400				$89,800

Contribution Margin By Product:
Half inch Model	$21,600		$28,800	$13,200	$15,600
One inch Model	$100,800		$86,400	($22,800)	$109,200
Total contribution Margin	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000		$35,000		$35,000
Operating Income	$87,400		$80,200		$89,800

Table (1)

Calculate the sales volume variance:

Product	Calculation	Result
Half Inch	[(0.3 × 6,5 00) – (0.5 × 7,200)] × ($14 − $6)	$13,500 (F)
One Inch	[(0.7 × 6,500) – (0.5 × 7,200)] × ($32 − $8)	$22,800 (U)

Table (2)

Calculate the selling price variance:

Product	Calculation	Result
Half Inch	(0.5 × 7,200) × ($14 − $12)	$7,200 (U)
One Inch	(0.5 × 7,200) × ($36 − $32)	$14,400 (F)

Table (3)

2

To determine

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

2

Expert Solution

Explanation of Solution

Compute the sales mix variance:

Product	Calculation	Result
Half Inch	(0.5 − 0.3) × 7,200 × ($14 − $6)	$11,520 (F)
One Inch	(0.5 − 0.7) × 7,200 × ($32 − $8)	$14,400 (F)

Table (4)

Compute the sales Quantity variance:

Product	Calculation	Result
Half Inch	(7,200 – 6,500) × 0.3 × ($14 − $6)	$1,680 (F)
One Inch	(7,200 – 6,500) × 0.7 × ($32 − $8)	$11,760 (F)

Table (5)

3

To determine

Identify whether the price change have the expected results. Explain the reasons.

3

Expert Solution

Explanation of Solution

The sales strategy of reducing the price on the half-inch model was a success in sales volume as sales units improved from 1,950(0.3 × 6,500) to 3,600(0.5 × 7,200), an increase of 1,650 units. The selling price variance was unfavorable due to the price change, a loss of $7,200($2 price change × 3,600 units), however the sales volume variance for the product, depending on sales, was favorable, at $23,100(1,650 units × $14), for a net positive impact on sales for the half-inch model of $15,900($23,100 − $7,200).

The strategy of increasing price on the one-inch model could have resulted the drop in sales of 950 units (0.7 × 6,500 − 0.5 × 7,200), however it produced a favorable selling price variance of $14,400, with an unfavorable sales volume variance of $30,400(950 × $32), depending on sales, for a net decline of $16,000 in sales dollars.

The impact of the raised sales volume on variable costs was $9,900(1,650 × $6) for the raised sales of the half inch model. The decreased variable costs due to the reduced sales of the one-inch model was 950 × $8 = $7,600.

The net effect on operating income of the sales strategies was unfavorable at $2,400($89,800 − $87,400). The net improvement in the half-inch model of $6,000($13,200 − $7,200) was offset by the loss of $8,400($22,800 − $14,400) on the one-inch model.

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Answer 5

Chapter 16, Problem 56P

1

To determine

Prepare a comparative contribution income statement for Incorporation C for the current year that shows the sales volume and selling price variance for each product.

1

Expert Solution

Explanation of Solution

Prepare a comparative contribution income statement for Incorporation C:

	Current year	Sales price variance	Flexible budget	Sales volume variance	Prior Year
Sales
Half inch Model	$43,200	($7,200)	$50,400	$23,100	$27,300
One inch Model	$129,600	$14,400	$115,200	($30,400)	$145,600
	$172,800	$7,200	$165,600	($7,300)	$172,900
Less: Variable Costs
Half inch Model	$21,600		$21,600	$9,900	$11,700
One inch Model	$28,800		$28,800	($7,600)	$36,400
Contribution	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000				$35,000
Operating Income	$87,400				$89,800

Contribution Margin By Product:
Half inch Model	$21,600		$28,800	$13,200	$15,600
One inch Model	$100,800		$86,400	($22,800)	$109,200
Total contribution Margin	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000		$35,000		$35,000
Operating Income	$87,400		$80,200		$89,800

Table (1)

Calculate the sales volume variance:

Product	Calculation	Result
Half Inch	[(0.3 × 6,5 00) – (0.5 × 7,200)] × ($14 − $6)	$13,500 (F)
One Inch	[(0.7 × 6,500) – (0.5 × 7,200)] × ($32 − $8)	$22,800 (U)

Table (2)

Calculate the selling price variance:

Product	Calculation	Result
Half Inch	(0.5 × 7,200) × ($14 − $12)	$7,200 (U)
One Inch	(0.5 × 7,200) × ($36 − $32)	$14,400 (F)

Table (3)

2

To determine

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

2

Expert Solution

Explanation of Solution

Compute the sales mix variance:

Product	Calculation	Result
Half Inch	(0.5 − 0.3) × 7,200 × ($14 − $6)	$11,520 (F)
One Inch	(0.5 − 0.7) × 7,200 × ($32 − $8)	$14,400 (F)

Table (4)

Compute the sales Quantity variance:

Product	Calculation	Result
Half Inch	(7,200 – 6,500) × 0.3 × ($14 − $6)	$1,680 (F)
One Inch	(7,200 – 6,500) × 0.7 × ($32 − $8)	$11,760 (F)

Table (5)

3

To determine

Identify whether the price change have the expected results. Explain the reasons.

3

Expert Solution

Explanation of Solution

The sales strategy of reducing the price on the half-inch model was a success in sales volume as sales units improved from 1,950(0.3 × 6,500) to 3,600(0.5 × 7,200), an increase of 1,650 units. The selling price variance was unfavorable due to the price change, a loss of $7,200($2 price change × 3,600 units), however the sales volume variance for the product, depending on sales, was favorable, at $23,100(1,650 units × $14), for a net positive impact on sales for the half-inch model of $15,900($23,100 − $7,200).

The strategy of increasing price on the one-inch model could have resulted the drop in sales of 950 units (0.7 × 6,500 − 0.5 × 7,200), however it produced a favorable selling price variance of $14,400, with an unfavorable sales volume variance of $30,400(950 × $32), depending on sales, for a net decline of $16,000 in sales dollars.

The impact of the raised sales volume on variable costs was $9,900(1,650 × $6) for the raised sales of the half inch model. The decreased variable costs due to the reduced sales of the one-inch model was 950 × $8 = $7,600.

The net effect on operating income of the sales strategies was unfavorable at $2,400($89,800 − $87,400). The net improvement in the half-inch model of $6,000($13,200 − $7,200) was offset by the loss of $8,400($22,800 − $14,400) on the one-inch model.

Answer 6

Chapter 16, Problem 56P

1

To determine

Prepare a comparative contribution income statement for Incorporation C for the current year that shows the sales volume and selling price variance for each product.

1

Expert Solution

Explanation of Solution

Prepare a comparative contribution income statement for Incorporation C:

	Current year	Sales price variance	Flexible budget	Sales volume variance	Prior Year
Sales
Half inch Model	$43,200	($7,200)	$50,400	$23,100	$27,300
One inch Model	$129,600	$14,400	$115,200	($30,400)	$145,600
	$172,800	$7,200	$165,600	($7,300)	$172,900
Less: Variable Costs
Half inch Model	$21,600		$21,600	$9,900	$11,700
One inch Model	$28,800		$28,800	($7,600)	$36,400
Contribution	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000				$35,000
Operating Income	$87,400				$89,800

Contribution Margin By Product:
Half inch Model	$21,600		$28,800	$13,200	$15,600
One inch Model	$100,800		$86,400	($22,800)	$109,200
Total contribution Margin	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000		$35,000		$35,000
Operating Income	$87,400		$80,200		$89,800

Table (1)

Calculate the sales volume variance:

Product	Calculation	Result
Half Inch	[(0.3 × 6,5 00) – (0.5 × 7,200)] × ($14 − $6)	$13,500 (F)
One Inch	[(0.7 × 6,500) – (0.5 × 7,200)] × ($32 − $8)	$22,800 (U)

Table (2)

Calculate the selling price variance:

Product	Calculation	Result
Half Inch	(0.5 × 7,200) × ($14 − $12)	$7,200 (U)
One Inch	(0.5 × 7,200) × ($36 − $32)	$14,400 (F)

Table (3)

Answer 7

Chapter 16, Problem 56P

1

To determine

Prepare a comparative contribution income statement for Incorporation C for the current year that shows the sales volume and selling price variance for each product.

Answer 8

1

Expert Solution

Explanation of Solution

Prepare a comparative contribution income statement for Incorporation C:

	Current year	Sales price variance	Flexible budget	Sales volume variance	Prior Year
Sales
Half inch Model	$43,200	($7,200)	$50,400	$23,100	$27,300
One inch Model	$129,600	$14,400	$115,200	($30,400)	$145,600
	$172,800	$7,200	$165,600	($7,300)	$172,900
Less: Variable Costs
Half inch Model	$21,600		$21,600	$9,900	$11,700
One inch Model	$28,800		$28,800	($7,600)	$36,400
Contribution	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000				$35,000
Operating Income	$87,400				$89,800

Contribution Margin By Product:
Half inch Model	$21,600		$28,800	$13,200	$15,600
One inch Model	$100,800		$86,400	($22,800)	$109,200
Total contribution Margin	$122,400	$7,200	$115,200	($9,600)	$124,800
Less: Fixed Costs	$35,000		$35,000		$35,000
Operating Income	$87,400		$80,200		$89,800

Table (1)

Calculate the sales volume variance:

Product	Calculation	Result
Half Inch	[(0.3 × 6,5 00) – (0.5 × 7,200)] × ($14 − $6)	$13,500 (F)
One Inch	[(0.7 × 6,500) – (0.5 × 7,200)] × ($32 − $8)	$22,800 (U)

Table (2)

Calculate the selling price variance:

Product	Calculation	Result
Half Inch	(0.5 × 7,200) × ($14 − $12)	$7,200 (U)
One Inch	(0.5 × 7,200) × ($36 − $32)	$14,400 (F)

Table (3)

Answer 9

1

Expert Solution

Answer 10

1

Expert Solution

Answer 11

Expert Solution

Answer 12

2

To determine

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

2

Expert Solution

Explanation of Solution

Compute the sales mix variance:

Product	Calculation	Result
Half Inch	(0.5 − 0.3) × 7,200 × ($14 − $6)	$11,520 (F)
One Inch	(0.5 − 0.7) × 7,200 × ($32 − $8)	$14,400 (F)

Table (4)

Compute the sales Quantity variance:

Product	Calculation	Result
Half Inch	(7,200 – 6,500) × 0.3 × ($14 − $6)	$1,680 (F)
One Inch	(7,200 – 6,500) × 0.7 × ($32 − $8)	$11,760 (F)

Table (5)

Answer 13

2

To determine

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

Answer 14

2

Expert Solution

Explanation of Solution

Compute the sales mix variance:

Product	Calculation	Result
Half Inch	(0.5 − 0.3) × 7,200 × ($14 − $6)	$11,520 (F)
One Inch	(0.5 − 0.7) × 7,200 × ($32 − $8)	$14,400 (F)

Table (4)

Compute the sales Quantity variance:

Product	Calculation	Result
Half Inch	(7,200 – 6,500) × 0.3 × ($14 − $6)	$1,680 (F)
One Inch	(7,200 – 6,500) × 0.7 × ($32 − $8)	$11,760 (F)

Table (5)

Answer 15

2

Expert Solution

Answer 16

2

Expert Solution

Answer 17

Expert Solution

Answer 18

3

To determine

Identify whether the price change have the expected results. Explain the reasons.

3

Expert Solution

Explanation of Solution

The sales strategy of reducing the price on the half-inch model was a success in sales volume as sales units improved from 1,950(0.3 × 6,500) to 3,600(0.5 × 7,200), an increase of 1,650 units. The selling price variance was unfavorable due to the price change, a loss of $7,200($2 price change × 3,600 units), however the sales volume variance for the product, depending on sales, was favorable, at $23,100(1,650 units × $14), for a net positive impact on sales for the half-inch model of $15,900($23,100 − $7,200).

The strategy of increasing price on the one-inch model could have resulted the drop in sales of 950 units (0.7 × 6,500 − 0.5 × 7,200), however it produced a favorable selling price variance of $14,400, with an unfavorable sales volume variance of $30,400(950 × $32), depending on sales, for a net decline of $16,000 in sales dollars.

The impact of the raised sales volume on variable costs was $9,900(1,650 × $6) for the raised sales of the half inch model. The decreased variable costs due to the reduced sales of the one-inch model was 950 × $8 = $7,600.

The net effect on operating income of the sales strategies was unfavorable at $2,400($89,800 − $87,400). The net improvement in the half-inch model of $6,000($13,200 − $7,200) was offset by the loss of $8,400($22,800 − $14,400) on the one-inch model.

Answer 19

3

To determine

Identify whether the price change have the expected results. Explain the reasons.

Answer 20

3

Expert Solution

Explanation of Solution

The sales strategy of reducing the price on the half-inch model was a success in sales volume as sales units improved from 1,950(0.3 × 6,500) to 3,600(0.5 × 7,200), an increase of 1,650 units. The selling price variance was unfavorable due to the price change, a loss of $7,200($2 price change × 3,600 units), however the sales volume variance for the product, depending on sales, was favorable, at $23,100(1,650 units × $14), for a net positive impact on sales for the half-inch model of $15,900($23,100 − $7,200).

The strategy of increasing price on the one-inch model could have resulted the drop in sales of 950 units (0.7 × 6,500 − 0.5 × 7,200), however it produced a favorable selling price variance of $14,400, with an unfavorable sales volume variance of $30,400(950 × $32), depending on sales, for a net decline of $16,000 in sales dollars.

The impact of the raised sales volume on variable costs was $9,900(1,650 × $6) for the raised sales of the half inch model. The decreased variable costs due to the reduced sales of the one-inch model was 950 × $8 = $7,600.

The net effect on operating income of the sales strategies was unfavorable at $2,400($89,800 − $87,400). The net improvement in the half-inch model of $6,000($13,200 − $7,200) was offset by the loss of $8,400($22,800 − $14,400) on the one-inch model.