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Yellow sells two types of squash ball,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 types A balls for every type B balls.
Actual sales were up 20000 at 240000 balls with type A balls being 200,000 of that total. Yellow values it’s stock of balls at standard margin cost.
What is the value of the favourable sales quantity variance?The book gives a solution of 87500 which comes as 240000 -220000 * Avg contribution. So sir please help me to get the solution of this question.
Are you sure that you have typed out the question correctly? Because if you have then the answer in your book is wrong.
The actual sales are 240,000, and since this is up by 20,000 it means that the budgeted sales were 240,000 – 20,000 = 220,000
They correct to say that the variance is therefore 20,000 x average contribution.
However the average contribution should have been calculated as follows:
For every 6 balls, 5 of them should be A balls and 1 of them should be a B ball.
Therefore, for 6 balls, the total contribution is (5 x $4) + (1 x $5) = $25.
Since this is the total standard contribution for 6 balls, the average contribution is $25/6 per ball.
Therefore the variance is 20,000 x $25/6 = $83,333
Again, please check that you have copied all the figures in the question correctly 🙂
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