# The sales price variance equals the difference

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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.