Suggested solution to selected problems from chapter 8
8.22
The sales volume variance will be unfavorable when the actual sales volume is less than
the planned sales volume underlying the master budget. The sales price variance will be
unfavorable when the actual sales price is less than the expected sales price at the time of
preparing the master budget. Yes, it is possible. Think of the reduced demand for trucks and
SUVs in response to steeply rising fuel price in the first six months of 2008. The auto companies
are reducing the prices on these vehicles to increase sales. Yet, despite such price cuts, the sales
of these vehicles decreased during this period.
8.27
As we know, the sales volume variance will be favorable when the actual sales volume is more
than planned sales volume underlying the master budget. Unexpected demand spurts can lead to a
favorable variance. But when such a spurt occurs, capacity resources get stretched, in which case the
actual fixed costs are likely to increase (e.g., rental of additional equipment, overtime paid for
supervision)
8.30
a.
The total profit variance = actual profit – master budget profit. With the information provided,
we have:
Master
Budget
Actual
Results
# of cupcakes
4,000
4,500
Revenue
$10,000
$10,800
Variable costs
4,000
4
,500
Contribution margin
$6,000
$6,300
Fixed costs
2,000
2
,000
Profit
$4,000
$4,300
Thus,
Clarissa’s total profit variance = $300 F =
$4,300 – $4,000.
b. & c.
To arrive at the sales volume variance and the sales price variance, we need to calculate
Clarissa’s flexible budget. With the data provided, we have:
1

Flexible
Budget
# of cupcakes
4,500
Revenue
1
$11,250
Variable costs
2
4,5000
Contribution margin
$6,750
Fixed costs
2,000
Profit
$4,750
1
$11,250 = $2.50 × 4,500
2
$4,500 = $1 × 4,500
The sales volume variance equals the difference between flexible budget profit and master
budget profit. For Clarissa, we have $4,750 – $4,000 =
$750 F sales volume variance.
The sales price variance equals the difference between actual revenue and flexible budget sales
revenue. For Clarissa, we have $10,800 – $11,250 = ($450) or
$450 U sales price variance.
NOTE:
Clarissa’s total profit variance of $300 F = $450 U sales price variance + $750 F sales
volume variance. This occurs because actual fixed and variable costs equaled budgeted fixed and
variable costs (i.e., both the fixed cost spending variance and the flexible budget variable cost
variance = $0).
8.38
a.
To calculate the ground beef price and quantity variances, we need to know: (1) the flexible
budget for ground beef; (2) the “as if” budget for ground beef; and (3) the actual results. The
table below provides the required computations and accompanying variances.
Flexible
Budget
1
Quantity
Variance
“As if”
Budget
2
Price
Variance
Actual
Results
3
Ground Beef
$4,050
$300 F
$3,750
$250 U
$4,000
2

1
$4,050 = 1,200 hamburgers actually served × (225/200) pounds of ground beef