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

Exercise 52

Sales Variances; Flexible-Budget Variance; Review of Chapter 14 Jerry Tanner, CEO and a major stockholder of Tanner Company, was unhappy with its operating results in 2010. The company manufactures two environmentally friendly industrial cleaning machines used primarily in automobile repair shops, gas stations, and auto dealerships. The master budget and operating results of the year (000s omitted except for the selling price per unit) follow:

	Actual		Budget
	G80	H20	G80	H20
Sales	$85,500	$56,700	$100,000	$40,000
Variable cost	45,900	31,050	50,000	25,000
Contribution	$39,600	$25,650	$ 50,000	$15,000
Fixed cost	10,000	10,000	10,000	10,000
Operating income	$29,600	$15,650	$ 40,000	$ 5,000
Units sold	900	1,350
Unit selling price			$ 100	$ 40

Required

1. Compute the contribution margin flexible-budget variance, contribution margin sales volume variance, contribution margin sales quantity variance, and contribution margin sales mix variance for each product and for the firm.

---

2. Write a memo to Jerry Tanner about the implications of the variances that you just computed on planning and operational control.

Step 1 of 3

Budget and variance:

Budget is a statement prepared by the management of the business entity which helps them to estimate the expenses, income, receipts, payment, sales and purchases during the period. It is prepared keeping in mind the companies’ objectives and abilities with respect to resources they have. Often businesses deviate from their budgeted figures either in favourable way or unfavourable way. Such deviations are commonly referred to as variances.