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 111,400 $28 Product S 162,300 22 Product T 15,900 19 At the end of the year, actual sales revenue for Product R and Product S was $3,094,200 and $3,654,000, respectively. The actual price charged for Product R was $27 and for Product S was $21. Only $9 was charged for Product T to encourage more consumers to buy it, and actual sales revenue equaled $382,050 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 $ 114,600 Unfavorable $ 89,600 Favorable Product S $ 174,000 Unfavorable $ 257,400 Favorable Product T $ 424,500 Unfavorable $ 504,450 Favorable 2. Suppose that Product T is a new product just introduced during the year. What pricing strategy is Eastman, Inc., following for this product? Penetration pricing strategy

Answer 1

Solution 1:

Comutation of Sales price variance & Sales volume variance
Product	Budgeted sales volume (BSQ)	Budgeted selling price (BSP)	Actual sales volume (ASQ)	Actual selling price (ASP)	Actual sales value (ASQ * ASP)	Actual sale at budgeted price (ASQ * BSP)	Budgeted sales (BSQ * BSP)	Sales price variance (BSP - ASP)* ASQ	Sales Volume Variance (BSQ -ASQ) * BSP
R	111400	$28.00	114600	$27.00	$3,094,200.00	$3,208,800.00	$3,119,200.00	$114,600 U	$89,600 F
S	162300	$22.00	174000	$21.00	$3,654,000.00	$3,828,000.00	$3,570,600.00	$174000 U	$257400 F
T	15900	$19.00	42450	$9.00	$382,050.00	$806,550.00	$302,100.00	$424,500 U	$504,450 F

Solution 2:

Eastman inc. is following Penetration pricing strategy for product T