Chapter 17, Problem 29E

Sales Mix and Quantity Variances

Chow-4-Hounds (C4H) makes pet food for sale in supermarkets. C4H produces two general types: Branded and Generic. The two differ primarily in the ingredients used. At budget, Branded sells for $12 per case and has a variable cost to produce of $5 per case. Generic sells for a budgeted $9 per case and has a budgeted variable cost to produce of $4 per case. C4H expects to sell 30 percent Branded and 70 percent Generic regardless of the sales volume. C4H budgeted total sales of 200,000 cases for March. Actual case volume sold in March was 210,000 cases, of which 60,000 were Branded. Total actual revenues in March were $2,055,000, of which $780,000 were from sales of Branded cases.

Required

1. a.      Compute the activity variance for C4H for March.
2. b.      Compute the mix and quantity variances for March.

To determine

Compute the activity variance for the data given in the question.

Answer to Problem 29E

The value of activity variance for the data given is $50,000 U.

Explanation of Solution

Activity variance:

Activity variance is the resultant market share that has been computed or derived at the end of the accounting period by taking the difference of actual and standard activity for which the computations are being done.

Compute the activity variance according to the information given in the question:

Particulars	Amount
Activity variance:
Flexible budget	$1,170,000(1)
Standard contribution	$1,120,000 (2)
Activity variance	$50,000 U

Table: (1)

Thus, the value of activity variance is $50,000 U.

Working note 1:

Compute the flexible budget:

$\begin{array}{c}\text{Flexible budget =}\left(\begin{array}{l}\left(\text{ AQ}\times \left(\text{SP}-\text{SV}\right)\right)\text{of standard model}\\ +\left(\text{AQ}\times \left(\text{SP}-\text{SV}\right)\right)\text{ of blaster model}\end{array}\right)\\ =\left(60,000\times \left(\$12-\$5\right)\right)+\left(150,000\times \left(\$9-\$4\right)\right)\\ =\left(60,000\times 7\right)+\left(150,000\times 5\right)\\ =\$420,000+\$750,000\end{array}$

Resulting in,

$\text{Flexible budget}=\$1,170,000$

Working note 2:

Compute the flexible budget:

$\begin{array}{c}\text{Flexible budget =}\left(\begin{array}{l}\left(\text{ SQ}\times \left(\text{SP}-\text{SV}\right)\right)\text{of standard model}\\ +\left(\text{SQ}\times \left(\text{SP}-\text{SV}\right)\right)\text{ of blaster model}\end{array}\right)\\ =\left(60,000\times \left(\$12-\$5\right)\right)+\left(140,000\times \left(\$9-\$4\right)\right)\\ =\left(60,000\times 7\right)+\left(140,000\times 5\right)\\ =\$420,000+\$700,000\end{array}$

Resulting in,

$\text{Flexible budget}=\$1,120,000$

To determine

Break down the computed activity variance into mix and quantity parts.

Answer to Problem 29E

The value of the mix variance is $6,000U, and the quantity variance is $56,000F.

Explanation of Solution

Mix variance:

Mix variance is the difference between the actual and budgeted mix determined for two or more than two products.

Quantity variance:

Quantity variance is the resultant market share that has been computed or derived at the end of the accounting period by taking the difference of actual and standard quantity for which the computations are being done.

Compute the mix variance:

Particulars	Amount
Mix variance:
Flexible budget	$1,170,000(1)
Standard contribution	$1,176,000(3)
Mix variance	$6,000 U

Table: (2)

Compute the quantity variance:

Particulars	Amount
Quantity variance:
Flexible budget	$1,120,000(2)
Standard contribution	$1,176,000(3)
Quantity variance	$56,000 F

Table: (3)

Thus, the value of the mix variance is $6,000Uand; the quantity variance is $56,000 F.

Working note 3:

Compute the standard contribution:

$\begin{array}{c}\text{Flexible budget =}\left(\begin{array}{l}\left(\text{ ASQ}\times \left(\text{SP}-\text{SV}\right)\right)\text{of standard model}\\ +\left(\text{ASQ}\times \left(\text{SP}-\text{SV}\right)\right)\text{ of blaster model}\end{array}\right)\\ =\left(210,000\times \frac{60,000}{200,000}\times \left(\$12-\$5\right)\right)+\left(210,000\times \frac{140,000}{200,000}\times \left(\$9-\$4\right)\right)\\ =\left(210,000\times 0.30\times 7\right)+\left(210,000\times 0.70\times 4\right)\\ =\$441,000+\$588,000\end{array}$

Resulting in,

$\text{Flexible budget}=\$1,029,000$