Question

Terry Auto Imports is a regional auto dealership that specializes in selling high-end imported luxury automobiles.
Master budget data and actual results for October are as follows:
		Master budget	Actual Results
Sales (# of cars)		66	78
Sales price per car		$50,000	$45,000
Variable cost per car		$40,000	$40,000
Fixed costs		$250,000	$250,000
Terry Auto has 5 summer trainees (Call them A, B, C, D and E). Each has calculated the sales volume variance
and sales price variance for October. Who is right? Select ONE statement.

A.

Sales volume variance		Sales Price Variance
$390,000	Favorable	$120,000	Unfavorable

B.

Sales volume variance		Sales Price Variance
$120,000	Favorable	$390,000	Unfavorable

C.

Sales volume variance		Sales Price Variance
$600,000	Favorable	$390,000	Unfavorable

D.

Sales volume variance		Sales Price Variance
$390,000	Favorable	$600,000	Unfavorable

E.

Sales volume variance		Sales Price Variance
$390,000	Unfavorable	$120,000	Favorable

Answer 1

Solution :

The Answer is (c)

Sales volume variance		Sales Price Variance
$600,000	Favorable	$390,000	Unfavorable

Working :

(1) Sales Volume Variance = (Actual Units Sold - Budgeted Units) * Budgeted Selling Price

= (78 - 66) * $ 50,000

= $ 600,000 Favorable

(2) Sales Price Variance = (Actual Price - Budgeted Price) * Actual Units Sold

= ($ 45,000 - $ 50,000) * 78

= $ 390,000 Unfavorable

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