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- This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.

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- November 19, 2015 at 10:11 am #283884
Hello, Mr Moffat.

Jones’ monthly absorption costing variance analysis report includes a sales mix variance, which indicates the effect on profit of actual sales mix differing from the budgeted sales mix. The following data are available:

PRODUCT X

Selling price = $12

(Variable Cost) = ($6)

(Fixed Cost) = ($2)

Standard net profit per unit = $4PRODUCT Y

Selling price = $11

(Variable Cost) = ($2)

(Fixed Cost) = ($3)

Standard net profit per unit = $6July sales (units):

PRODUCT X

Budget = 3,000

Actual = 2,000PRODUCT Y

Budget = 6,000

Actual = 8,000What is the favourable sales mix variance for July?

A) $8,000

B) $5,333

C) $4,000

D) $2,667My answer (which is wrong) is C) $4,000.

Actual mix = 2,000 units + 8,000 units = 10,000 units

Standard Mix = (10,000u x 4/10) + (10,000u x 6/10) = 4,000u + 6,000u

Standard Profit from Actual Mix = (2,000 units x $4) + (8,000 units x $6) = $56,000

Standard Profit from Standard Mix = (4,000 units x $4) + (6,000 units x $6) = $52,000

Difference = $4,000The correct answer is D) $2,667

10x – (2 x $4 + 8 x $6) = $2,667I will be really grateful, if you explain to me why is answer D correct, because I… I just don’t get it. I cannot even understand their solution.

Thank you.November 19, 2015 at 11:01 am #283907It is your standard mix that is wrong.

They budgeted on selling 9,000 in total of which 3,000 (1/3) are X and 6,000 (2/3) are Y.

Therefore standard mix for the actual total sales of 10,000 would be:

X: 1/3 x 10,000 = 3,333; Y: 2/3 x 10,000 = 6,667This would give a profit of (3,333 x $4) + (6,667 x $6) = $53,333

If you compare this with the standard profit for the actual mix of $56,000 you get a favourable variance of $2,667.

November 19, 2015 at 11:08 am #283910Thank you very much!

November 19, 2015 at 11:10 am #283914You are welcome 🙂

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