Question

Pricing Strategy, Sales Variances

Eastman, Inc., manufactures and sells three products: R, S, and T. In January, Eastman, Inc., budgeted sales of the following.

	Budgeted Volume	Budgeted Price
Product R	104,800	$28
Product S	150,000	23
Product T	20,900	23

At the end of the year, actual sales revenue for Product R and Product S was $2,921,400 and $3,601,400, respectively. The actual price charged for Product R was $27 and for Product S was $22. Only $13 was charged for Product T to encourage more consumers to buy it, and actual sales revenue equaled $722,150 for this product.

Required:

1. Calculate the sales price and sales volume variances for each of the three products based on the original budget.

	Sales price variance		Sales volume variance
Product R	$	Unfavorable	$	Favorable
Product S	$	Unfavorable	$	Favorable
Product T	$	Unfavorable	$	Favorable

Answer 1

Computation of sales price variance:

Actual quantity ( actual price - standard price )

Product R	108,200 ( 27 - 28 )	108,200 (unfavorable)
Product S	163,700(22-23)	163,700(unfavorable)
Product T	55,550(13-23)	555,500(unfavorable)

Computation of sales volume variance:

standard price ( actual quantity - standard quantity)

Product R	28(108,200-104,800)	95,200(favourable)
Product S	23(163,700-150,000)	315,100(favourable)
Product T	23(55,550-20,900)	796,950(favourable)

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