Case 10.1

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Case 10-1; Oct.2011
Summary and Opinion
For February 1988, if using variable costing, the variance is favorable and if using full costing it is unfavorable. The market share variance is strongly unfavorable, while industry volume variance is favorable. As for market share, if actual sales were increased it would offset some of the variances. For March 1988, if using variable costing the variance is favorable to a greater extent than it is if using full costing. The market share and industry volume variances are unfavorable and favorable respectively, like February. The unfavorable market share variance in March is lower than in February, and industry volume variance is also better in March, it is more favorable. Although, sales are lower in March the unit contribution is greater which accounts for the better results in March. For the analysis of variance between actual and budgeted profits for January 1988, the results are varied. First, the selling price variance is unfavorable. The sales mix and volume variance is also unfavorable. Next, the mix variance is favorable, but sales volume variance is unfavorable. Finally, fixed cost variance is unfavorable, while variable manufacturing expense variance is favorable. An actual loss of $70,000 with a budgeted profit of $210,000 gives an unfavorable net profit of $280,000. The difference occurred due to an unfavorable sales variance of $340,000. The company needs to increase sales and/or unit price of products. There is an unfavorable selling price and volume variance. The company has maintained a good product mix with a favorable variance. The variable expense variance is favorable, due to unfavorable volume variance. Variable costs are directly related to sales volume, so variable cost variance is favorable, because of low sales volume and low unit price. Increasing market share, sales volume and/or unit price is recommended, and should be done as soon as possible, so it can...
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