# Consider the static budget column column 3 static

• 72
• 99% (139) 137 out of 139 people found this document helpful

This preview shows page 25 - 28 out of 72 pages.

Consider the static budget column (Column 3):Static budget total contribution margin\$15,525Budgeted units of all glasses to be sold2,300Budgeted contribution margin per unit of Plain\$5Budgeted contribution margin per unit of Chic\$12Suppose that the budgeted sales-mix percentage of Plain isy. Then the budgeted sales-mixpercentage of Chic is (1 –y).Therefore,(2,300y × \$5) + (2,300 × (1 –y) × \$12)=\$15,525\$11,500y+ \$27,600 – \$27,600y=\$15,525\$16,100y=\$12,075y=0.75 or 75%1 –y=25%Hiro’s budgeted sales mix is 75% of Plain and 25% of Chic. We can then fill in all the numbersin Column 3.Step 2Next, consider Column 2 of Solution Exhibit 14-26.The total of Column 2 in Panel C is \$12,825 (the static budget total contribution margin of\$15,525 – the total sales-quantity variance of \$2,700 U which was given in the problem).We need to find the actual units sold of all glasses, which we denote byq. From Column 2, weknow that(q× 0.75 × \$5) + (q× 0.25 × \$12)=\$12,825\$3.75q+ \$3q=\$12,825\$6.75q=\$12,825q=1,900 unitsSo, the total quantity of all glasses sold is 1,900 units. This computation allows us to fill in all thenumbers in Column 2.Step 314-25
Next, consider Column 1 of Solution Exhibit 14-26. We know actual units sold of all glasses(1,900 units), the actual sales-mix percentage (given in the problem information as Plain, 60%;Chic, 40%), and the budgeted unit contribution margin of each product (Plain, \$5; Chic, \$12).We can therefore determine all the numbers in Column 1.Solution Exhibit 14-26 displays the following sales-quantity, sales-mix, and sales-volumevariances:Sales-Volume VariancePlain\$2,925 UChic2,220FAll Glasses\$705USales-Mix VariancesSales-Quantity VariancesPlain\$1,425 UPlain\$1,500 UChic3,420FChic1,200UAll Glasses\$1,995FAll Glasses\$2,700U3.Hiro Corporation shows an unfavorable sales-quantity variance because it sold fewerwine glasses in total than was budgeted. This unfavorable sales-quantity variance is partiallyoffset by a favorable sales-mix variance because the actual mix of wine glasses sold has shiftedin favor of the higher contribution margin Chic wine glasses. The problem illustrates how failureto achieve the budgeted market penetration can have negative effects on operating income.
14-26
Chic760 × \$12475 × \$12575 × \$12\$9,120\$5,700\$6,900\$3,420 F\$1,200 USales-mix varianceSales-quantity variance\$2,220 FSales-volume variancePanel C:All Glasses\$14,820\$12,825\$15,525\$1,995 F\$2,700 UTotal sales-mix varianceTotal sales-quantity variance\$705 UTotal sales-volume varianceF = favorable effect on operating income; U = unfavorable effect on operating income.

Course Hero member to access this document

Course Hero member to access this document

End of preview. Want to read all 72 pages?