Question

Davidson Corp. produces a single product: fireproof safety deposit boxes for home use. The budget going into the current year anticipated a selling price of $58 per unit. Because of competitive pressures, the company had to cut selling prices by 5% during the year. Budgeted variable costs per unit are $35, and budgeted total fixed costs are $157,500 for the year. Anticipated sales volume for the year was 11,500 units. Actual sales volume was 10% less than budget.

(1) What was the sales price variance for the year? (2) Label this variance F (favorable) or U (unfavorable), as appropriate.

Answer 1

Step 1: Calculation of actual price

Anticipated or Standard Price = $58 per unit

Actual Price = $58 - ($58 * 5%)

Actual Price = $58 - $2.90 = $55.10 per unit

Step 2: Calculation of Actual Unit

Anticipated or Standard sales Units = 11500 units

Actual Units = 11500 units - (11500 * 10%)

Actual Units = 11500 - 1150 = 10350 units

Step 3: Calculation of Sales price Variance

Sales Price Variance = (Actual Price - Standard Price) * Actual Unit

Sales Price Variance = ($55.10 - $58.00) * 10350 units

Sales Price Variance = ($2.90) * 10350 units = ($30015) Unfavorable

All the best...