Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 39

Sales Variances; Year to Year Hathaway Products, Inc., produces an innovative lighting system used in restaurants and high-end retail stores to provide a pleasing, warm atmosphere. Hathaway produces two versions of the product, called Starlight and Moonlight. Sales management at Hathaway wants to complete a sales performance analysis and has collected the following information for 2009 and 2010.

	2010			2009
Sales units	12,000		10,000
Sales mix for each product
Starlight	20%		25%
Moonlight	80%		75%
Price
Starlight	$35.00		$ 35.00
Moonlight	$85.00		$ 90.00
Variable cost per unit
Starlight	$22.00		$ 22.00
Moonlight	$48.00		$ 48.00
Fixed cost	$150,000	$150,000

Required

1. Calculate a flexible budget contribution income statement for 2010, showing the 2010 results, the 2009 results, and the flexible budget. Use Exhibit 16.15 as a guide.

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2. Calculate the volume variances for each product based both on sales dollars and contribution margin.

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3. Determine the sales volume variance, the sales mix variance, and the sales quantity variance for each product, based on contribution margin.

Step 1 of 3

1.?Contribution Income Statement for Hathaway

					Sales Price		Flexible		Sales Volume
	Sales		January 2010		Variance		Budget		Variance		December 2009
	Starlight	$ 84,000	$ -	$ 84,000	$ (3,500)	$ 87,500
Moonlight	8,16,000	(48,000)	8,64,000	1,89,000	6,75,000
Total Sales	$ 9,00,000	$ (48,000)	$ 9,48,000	$ 1,85,500	$ 7,62,500
Less Variable Costs
Starlight	$ 52,800	-	$ 52,800	$ (2,200)	$ 55,000
Moonlight	4,60,800	-	4,60,800	1,00,800	3,60,000
Total Variable Costs	$ 5,13,600		$ 5,13,600	$ 98,600	$ 4,15,000
Contribution
Starlight	$ 31,200	$ -	$ 31,200	$ (1,300)	$ 32,500
Moonlight	3,55,200	(48,000)	4,03,200	88,200	3,15,000
Total Contribution	$ 3,86,400	$ (48,000)	$ 4,34,400	$ 86,900	$ 3,47,500
Less Fixed Costs	1,50,000				1,50,000
Operating Income	$ 2,36,400				$ 1,97,500
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