Question

Ibrahim Shop sells a variety of Toys. In a recent month, it’s accounting information system revealed the following information:

                                                            Budget             Actual

Units                                                      2,500               3,200

Sales revenue                                     $10,000           $12,000

Variable product costs                           1,200               2,000

Fixed manufacturing costs                        800                  700

Variable selling costs                             1,500               1,400

Fixed nonmanufacturing costs                  500                  600

a.   Calculate the following variances:

Revenue budget variance

Sales price variance

Revenue sales quantity variance

b.         Suggest two reasons why managers might be interested in investigating one or more of the variances in part (a).

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Answer 1

Answer :-

Let us consider the given problem,

(A) (1) Revenue budget variance :

Revenue budget variance : actual sales - budgeted sale

= 12000 - 10000

= $2000 (Favourable)

(2) Sales price variance :

Sales price variance = Actual quantity sold * (Actual selling price - standrad selling rpice)

= 3200 * [(12000/3200) - (10000/2500)]

= 3200 * [3.75 - 4]

= $800 [unfavourable]

(3) Sales quantity variance :-

= Standard selling price * ( Actual quantity sold - Budgeted quantity sold)

= (10000/2500) * (3200 - 2500)

= 4 * 700

2800 ( Favourable )