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- This topic has 3 replies, 2 voices, and was last updated 10 years ago by John Moffat.
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- November 15, 2014 at 11:14 pm #210296
Hello John,
Another doubt with Kaplan’s offered solution. Here is the problem:
You have been provided with the following information relating to the three products:
Product X Product Y Product Z
Demand (units) 1,000 2,000 3,000
Selling price $15 $20 $30
Profit per unit $2 $5 $2Actual sales for the year showed following results:
Product X Product Y Product Z
Units sold 1,100 2,050 2,800
Sales value $17,050 $38,950 $86,800
Profit $3,080 $10,455 $6,160What is the sales quantity variance?
What I have done is a simple application of the rule:
?ctual quantity at standard contribution=1,100*$2+2,050*$5+2800*$2=$18,050
Budgeted quantity at standard contribution=1,000*$2+2,000*$5+3000*$2=$18,000
Therefore sales quantity variance is $50 adverse.However, Kaplan offers a different solution including sales mix (?), copied literally below:
AQ AM SP AQ SM SP BQ SM SP
units $ units $ units $
X 1,100 2,200
Y 2,050 10,250 *
Z 2,800 5,600 @$3 @$3
———————————————————————————-
5,950 $18,050 5,950 $17,850 6,000 $18,000
———————————————————————————-
*=$3Sales quantity variance = $18,000 – $17,850 = $150
Why are they including mix variance into the solution, since it it irrelevant and if SM means standard mix, how come our results differ?
Many thanks i advance
Regards
MarkoNovember 16, 2014 at 9:40 am #210370Kaplan’s solution is correct.
You have simply calculated the overall sales variance. The variance occurs for two separate reasons – one is that the total overall sales have fallen, and the other is that the mix between the products has changed.
The quantity variance is calculating the effect of the fall in total sales (from a budgeted 6,000 to an actual 5,950) and ignoring the fact that the mix has changed.
Although not asked for, the mix variance would then compare actual total sales at actual mix, with actual total sales at standard mix.
November 16, 2014 at 11:15 am #210409Thank you John!
I was not aware that I have taken the changed mix into the account instead of ignoring it, as the solution actually has neutralized its effect, correctly.
ThanksNovember 16, 2014 at 4:44 pm #210480You are welcome 🙂
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