The next year\'s budget for Howard, Inc., a multi-product company, is given belo

Question

The next year's budget for Howard, Inc., a multi-product company, is given below:

At the end of the year, the total fixed costs and the variable costs per unit were exactly as budgeted, but the following units per product line were sold. Howard analyzes the effects its sales variances have on the profitability of the company.

Required:

(Be sure to indicate whether the variance is favorable or unfavorable.)

a. Compute the sales activity variance for each product.
b. Compute the market share variance for each product.
c. Compute the industry volume variance for each product.

Product A Product B Sales $ 1,890,000 $ 1,377,000 Variable costs 919,800 594,000 Fixed costs   500,000 500,000 Net income $ 470,200 283,000 Units 252,000 108,000 Market share 12.5 % 20.0 %

Explanation / Answer

1 Sales Variance Budg Act Increase/(Decrease) Favourable(F)/Unfavourable(UF) A Sales qty var 252,000 252,230 230 F Contribution P/U 3.9 3.678942          (0.17) UF B Sales qty var 108,000 113,770    5,770.00 F Contribution P/U 7.25 7.5            0.25 F 2 Market Share Variance Bud Act A Qty 252000 252,230 Markte share 13% 15% 252230 Total MS 2016000 1681533 Actual should have been achived 2016000 Actual Qty/Bud market / 252,230 12.5% 12.5% No impact B Qty 108,000 113,770 Markte share 20.00% 17% Total MS 540000 669235.3 Actual should have been achived 540000 / 113,770 20.00% 21% F 3 industry volume variance for each product Bud Act Increase/(Decrease) F/UF A 2016000 1681533 334466.7 F B 540000 669235.3 -129235 UF

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