Harris Miniature Sports Cars makes popular high quality models of expensive cars
ID: 2583406 • Letter: H
Question
Harris Miniature Sports Cars makes popular high quality models of expensive cars, such as the Maserati. Master budget data and actual results for the most recent quarter of operations are as follows:
Master Budget
Actual results
Sales (# of cars)
15,000
12,000
Revenues
$375,000
$300,000
Variable costs
75,000
54,000
Fixed costs
150,000
141,000
Profit
$150,000
$105,000
Mr. Harris is alarmed that actual revenue decreased by 20% and more importantly, that the actual profit decreased by 30% compared to the master budget. Because of these numbers, the owner is convinced that both marketing director and the production manager did not do a good job last quarter.
1. Compute Harris’s flexible budget for the most recent quarter of operations.
2. Calculate Harris’s sales volume and sales price variances for the month.
3. What were Harris’s variable cost and fixed cost variances for the most recent quarter?
4. In light of your answers to the variance calculations, who do you believe is responsible for the poor profit performance last quarter?
Master Budget
Actual results
Sales (# of cars)
15,000
12,000
Revenues
$375,000
$300,000
Variable costs
75,000
54,000
Fixed costs
150,000
141,000
Profit
$150,000
$105,000
Explanation / Answer
1) Harris's Flexible budget (Amount in $)
2) Sales volume variance = (Budgeted quantity-Actual quantity)Budgeted contribution margin per unit
= (15,000-12,000)*($25-$5) = 3,000*$20 = $60,000 Unfavourable
Sales Price variance = (Actual Price-Standard Price)*Actual units sold
= [($300,000/12,000)-$25]*12,000 = ($25-$25)*12,000 = 0
3) Variable cost variance = Standard cost - Actual cost = (12,000*$5) - $54,000 = $6,000 Favourable
Fixed cost Variance = Budgeted Fixed cost - Actual Fixed cost = $150,000-$141,000 = $9,000 Favourable
4) The variance for fixed cost and variable cost is favourable and there is no sales price variance but sales volume variance shows an unfavourble balance of $60,000. This means that only sales volume is responsible for poor profit performance last quarter, this is so because the actual sales are less then the budgeted sales.
Particulars Master Budget Per unit cost(Total cost/Master budget units) Flexible budget for actual sales (per unit cost*Actual units sold) Sale of cars 15,000 - 12,000 Revenues 375,000 25 300,000 Variable costs (75,000) 5 (60,000) Fixed costs (150,000) - (remains fixed) (150,000) Profit 150,000 - 90,000Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.