Question

Olive Tree Products sold 86,000 units during the last period when industry volume totaled 334,000 units. The company originally expected to sell 89,000 based on a budgeted market share of 20 percent. The budgeted selling price was $59 per unit. Budgeted variable costs were $34 per unit. Budgeted fixed costs were $314,000 and applied based on units produced.
Required: Compute the sales activity variance, and break it down into market share variance and the industry volume variance

Answer 1

Answer: See explanation

Explanation:

Actual units sold = 86000

Budgeted units sold = 89000

Budgeted selling price = 59

Budgeted variable cost = 34

Budgeted contribution margin = 59 - 34 = 25

Budgeted market share = 20%

Acual industry volume = 334000

Standard units sold = 20% × 334000 = 66800

Sales activity variance:

= (Actual units sold - Budgeted units sold) × Budgeted contribution margin

= (86000 - 89000) × 25

= -3000 × 25

= 75000 Unfavorable

Market share variance will be:

= (86000 × 25) - (66800 × 25)

= 2150000 - 1670000

= 480000 Favorable

Industry volume variance:

= (66800 × 25) - (89000 × 25)

= 1670000 - 2225000

= 555000 Unfavorable