Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 24

Sales Mix and Quantity Variances

Tapas By Tom (TBT) is a high-end restaurant. TBT offers two dining options. A fixed-price menu has a budgeted meal price of $60. An a la carte menu has a budgeted price of $40 for a meal. TBT expects that one-third of its diners will order the fixed-price menu. The fixed-price menu has a budgeted variable cost of $20 and the a la carte meal averages $16 per meal in budgeted variable cost. TBT estimates that 1,200 people will order a meal in any month.

?For July, TBT served a total of 1,080 meals, including 324 fixed-price meals. Total revenues were $17,820 for fixed-price meals and $34,020 for a la carte meals.

Required

a. Compute the activity variance for TBT for July.

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b. Compute the mix and quantity variances for July.

Step 1 of 9

Cost accounting

This system is designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.

Cost variances

Cost variance is the difference between actual quantities (AQ) multiplied with actual price (AP) and standard quantities (SQ) multiplied with standard price (SP).