•
•
The sales price variance equals the difference between actual revenue and flexible budget
sales revenue. For Midwestern University, we have $4,674,000 – $6,150,000 = ($1,476,000) or
$1,476,000 U sales price variance.
•
•
NOTE:
Midwestern University’s total football profit variance of $324,000 F = $1,800,000 F
sales volume variance + $1,476,000 U sales price variance. This result 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 variances = $0).
7

Solution to problem 1 (continued)
c.
The Athletic Director was indeed successful in putting bodies in the stadium – overall
attendance increased by a whopping 15,000 per game, or approximately 57% (=
[41,000 – 26,000]/26,000) from the prior year. Additionally, the substantial
increase in attendance led to an overall increase in profit of $324,000 for the
season. While the University incurred a large, unfavorable sales price variance, this
was more than made up for by the large, favorable sales volume variance.
Another positive associated with the move is that the stadium has increased
attendance now – in addition to making games more fun, this may spur
Midwestern University’s team to more wins which, in turn, may lead to better
recruiting classes and an overall turn around in the football program. Of course, a
winning program leads to large attendance figures and greater football profit.
8

Problem 2: Materials and labor
price and quantity variance
The Glass Vessel Company has established the following budget for producing one of its hand-
blown vases:
Materials (silica)
2 pounds @ 1.25 per pound
Labor
1.5 hours @ $15.00 per hour
In March of the most recent year, Glass Vessel produced 300 vases using 650 pounds of
materials. Glass Vessel purchased the 650 pounds of materials for $845. Labor costs for
March were $7,200 for 480 hours worked.
Required:
a. What were Glass Vessel’s materials price and materials quantity variances for March?
b. What were Glass Vessel’s labor price and labor quantity variances for March
9

Solution to problem 2
a.
To calculate the materials price and quantity variances, we need to know: (1) the flexible
budget for materials; (2) the “as if” budget for materials with actual efficiencies; and (3) the
actual results. The table below provides the required computations and accompanying
variances.
Flexible
Quantity
As if
Price
Actual
Budget
1
Variance
budget
2
Variance
Results
3
Materials
$750
$62.50 U
$812.50
$32.50 U
$845
1
$750 = 300 vases actually produced × 2 pounds of materials budgeted per vase × $1.25
budgeted cost per pound.
2
$812.50 = 650 pounds of materials actually used × $1.25 budgeted cost per pound.
3
Given.
Thus, Glass Vessel’s
materials price and quantity variances
were
$32.50 U
and
$62.50U
,
respectively, for March.
•
10

Solution to problem 2 (Continued)
b.
As in part [a], to calculate the labor price and quantity variances, we need to know: (1) the
flexible budget for labor; (2) the “as if” budget; and (3) the actual results. The table below
provides the required computations and accompanying variances.