# Did the sales volume increase because of a decrease

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Did the sales volume increase because of a decrease in selling price or because of growth in the overall market? Analysis of these questions would help Levine decide what actions he should take.
7-9 7-21 7-21 (20–30 min.) Price Price and and efficiency efficiency variances. variances. 1. The key information items are: Peterson budgets to obtain 4 pumpkin scones from each pound of pumpkin. The flexible-budget variance is \$408 F. a 16,000 × \$0.82 = \$13,120 b 60,800 × 0.25 × \$0.89 = \$13,528 c 60,000 × 0.25 × \$0.89 = \$13,350 \$1,120 F \$712 U Price variance Efficiency variance \$408 F Flexible-budget variance a 16,000 × \$0.82 = \$13,120 b 16,000 × \$0.89 = \$14,240 c 60,800 × 0.25 × \$0.89 = \$13,528 3. The favorable flexible-budget variance of \$408 has two offsetting components: (a) favorable price variance of \$1,120––reflects the \$0.82 actual purchase cost being lower than the \$0.89 budgeted purchase cost per pound. (b) unfavorable efficiency variance of \$712––reflects the actual materials yield of 3.80 scones per pound of pumpkin (60,800 ÷ 16,000 = 3.80) being less than the budgeted yield of 4.00 (60,000 ÷ 15,000 = 4.00). The company used more pumpkins (materials) to make the scones than was budgeted. One explanation may be that Peterson purchased lower quality pumpkins at a lower cost per pound. Actual Budgeted Output units (scones) Input units (pounds of pumpkin) Cost per input unit 60,800 16,000 \$ 0.82 60,000 15,000 \$ 0.89 Actual Actual Results (1) (1) Flexible- Budget Variance (2) (2) = (1) (1) (3) (3) Flexible Flexible Budget (3) (3) Sales-Volume Sales-Volume Variance (4) (4) = (3) (3) (5) (5) Static Static Budget (5) (5) Pumpkin costs \$13,120 a \$408 F \$13,528 b \$178 U \$13,350 c 2. Actual Actual Costs Costs Incurred (Actual Input Qty. × Actual Price) Actual Input Qty. × Budgeted Price Flexible Budget (Budgeted (Budgeted Input Input Qty. Allowed for Actual Output × Budgeted Price) \$13,120 a \$14,240 b \$13,528 c
7-10 7-22 7-22 (15 min.) Materials Materials and and manufacturing manufacturing labor labor variances. variances. \$14,000 F \$11,000 F Price variance Efficiency variance \$25,000 F Flexible-budget variance Direct \$90,000 \$86,000 \$80,000 Mfg. Labor \$4,000 U \$6,000 U Price variance Efficiency variance \$10,000 U Flexible-budget variance 7-23 (30 min.) Direct materials and direct manufacturing labor variances. 1. Actual Costs Incurred (Actual Input Qty. × Actual Price) Actual Input Qty. × Budgeted Price Flexible Flexible Budget Budget (Budgeted Input Qty. Allowed for Actual Output × Budgeted Price) Direct Materials \$200,000 \$214,000 \$225,000 May 2009 Actual Results Price Variance Actual Actual Quantity Budgeted Price Efficiency Variance Flexible Budget (1) (1) (2) (2) = (1) (1) (3) (3) (3) (3) (4) (4) = (3) (3) (5) (5) (5) (5) Units 550 550 Direct materials \$12,705.00 \$1,815.00 U \$10,890.00 a \$990.00 U \$9,900.00 b Direct labor \$ 8,464.50 \$ 104.50 U \$ 8,360.00 c \$440.00 F \$8,800.00 d Total price variance \$1,919.50 U Total efficiency variance \$550.00 U a 7,260 meters \$1.50 per meter = \$10,890 b 550 lots 12 meters per lot \$1.50 per meter = \$9,900 c 1,045 hours \$8.00 per hour = \$8,360 d 550 lots 2 hours per lot \$8 per hour = \$8,800 Total flexible-budget variance for both inputs = \$1,919.50U + \$550U = \$2,469.50U Total flexible-budget cost of direct materials and direct labor = \$9,900 + \$8,800 = \$18,700 Total flexible-budget variance as % of total flexible-budget costs = \$2,469.50 \$18,700 = 13.21%
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