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Hello Sir,
Greetings!
Ques – Bloom Limited was the subject of the following press story:
Yellow sells two types of squash balls: the type A and the type B. The standard contribution
from these balls is $4 and $5 respectively and the standard profit per ball is $1.50 and $2.40
respectively. The budget was to sell 5 type A balls for every 3 type B balls.
Actual sales were up 20,000 at 240,000 balls with type A balls being 200,000 of that total.
Yellow values its stock of balls at standard marginal cost.
What is the value of the adverse sales mix variance?
My question :
Actual sales in actual mix
A – 200,000
B – 40,000
Sir, but how did they calculated the actual sales in standard mix ? I mean there is nothing mentioned abt the budgeted sales here?Also, sir Can you please help me with one more thing …
How do we determine Adverse and favorable , like if Actual sales in actual mix is greater than actual quantity in standard quantity then what will it be ? I am getting so confused I feel the books have not shown any specific rule for this.. and its confusing ..Thanks for the help !
The question says that the budget was to sell 5 type A balls for every 3 type B balls.
So out of every 8 balls, 5 are A and 3 are B.Therefore for the 240,000 total sales, 5/8 should be type A and 3/8 should be type B.
As with all variances, if actual will result in more profit then the variance is favourable, whereas is actual will result in less profit then the variance is adverse. With costs, less cost means more profit. With sales, more revenue means more profit.
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