- This topic has 4 replies, 2 voices, and was last updated 2 years ago by
.
- Posts
Fort Co produces and sells three models of family car: a basic model (the Drastic), an
upgraded model (the Bomber) and a deluxe model (the Cracker). All of the cars are priced to
achieve a 6% mark up on standard cost. For the month of June, Fort Co budgeted to sell
30,000 units of the Drastic and so have 10% market share of the budgeted sales at a price of
$10,600 each. Fort Co. actually achieved a 15% share of the market, though the market had
actually contracted by 5%.
The following information is available for July.
Drastic Bomber Cracker
Sales units:
– Budgeted 27,000 15,000 18,000
– Actual 26,000 16,000 14,000Budgeted sales price $10,600 $13,250 $16,960
Which TWO of the following statements are true?
(1) The sales mix variance would not give useful information to the management of
Fort Co if the Cracker was a van.
(2) The sales mix variance will not be affected if the labour efficiency on the Drastic
production line increases, all other factors remaining the same.
(3) The market share variance is a planning variance, not an operational variance.
(4) If the mix variance was calculated as a physical quantity, the answer would
always be zero.
A (1) and (2)
B (2) and (3)
C (3) and (4)
D (1) and (4)1. Mix variances are relevant when customers buy one car instead of another car – i.e. the products are substitutable. People are less likely to by a van instead of a car.
4. I specifically mention this in my lectures and I do suggest that you watch them. Buying more units of one car automatically means buying fewer of another.
2. If they are more efficient they will produce more, and bigger volumes result in bigger revenues and profits.
- The topic ‘VARIANCE’ is closed to new replies.