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

Exercise 37

Revenue Analysis Using Industry Data and Multiple Product Lines

Peninsula Candy Company makes three types of candy bars: Chewy, Chunky, and Choco-Lite (Lite) Sales volume for the annual budget is determined by estimating the total market volume for candy bars and then applying the company’s prior year market share, adjusted for planned changes due to company programs for the coming year Volume is apportioned among the three bars based on the prior year’s product mix, again adjusted for planned changes for the coming year.

?The following are the company budget and the results of operations for July.

Budget	Chewy		Chunky		Choco-Lite		Total
Sales-units (in thousands)	2,000	bars	2,000	bars	4,000	bars	8,000	bars
Sales-dollars (in thousands)	$200		$400		$600		$1,200
Variable costs	140		320		460		920
Contribution margin	$ 60		$ 80		$140		$ 280
Manufacturing fixed cost	40		40		60		140
Product margin	$ 20		$ 40		$ 80		$ 140
Marketing and administrative
costs (all fixed)							50
Operating profit							$ 90
Actual
Sales-units (in thousands)	1,600	bars	2,000	bars	4,200	bars	7,800	bars
Sales-dollars (in thousands)	$162		$400		$600		$1,162
Variable costs	112		322		464		898
Contribution margin	$ 50		$ 78		$136		$ 264
Manufacturing fixed cost	42		44		63		149
Product margin	$ 8		$ 34		$ 73		$ 115
Marketing and administrative
costs (all fixed)							55
Operating profit							$ 60

Industry volume was estimated at 80 million bars for budgeting purposes Actual industry volume for July was 76 million bars.

Required

a. Prepare an analysis to show the effects of the sales price and sales activity variances.

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b. Break down the sales activity variance into the parts caused by industry volume and market share.

Step 1 of 12

PC Company manufactures three types of candy bars which are C, Ch and CL. The budgeted figures of sales of all the three types of Candy’s and the actual figures of Candy’s are given.

The difference between actual contribution (the actual contribution means the difference between actual selling price and standard variable cost) for actual quantity sold and the standard contribution for actual quantity sold is the sales price variance.

The actual contribution calculated by the difference between actual selling price and standard variable cost for actual quantity sold is calculated as under:

	C	CH	CL	Total
Budgeted Variable cost	$140	$320	$460	$920
Budgeted sales qty	2,000	2,000	4,000	8,000
Budgeted Std. VC per unit	$0.07	$0.16	$0.115	$0.345
Actual sales qty	1,600	2,000	4,200	7,800
Standard variable cost for actual sales	$112	$320	$483	$915