business question 107

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Answer one question.

In January 2019, Emerald Ltd acquired Kilmala Ltd, a company which manufactures and sells electrical components.For many years, Kilmala Ltd was renowned for its experienced sales force, some of whom had been employed for by the company for over 20 years.The following data from July 2018 relates to the sales department which was responsible for distributing the three products manufactured by Kilmala Ltd, products A, B and C:

Product A

Product B

Product C

Budgeted selling price per unit

£10.00

£12.00

£18.00

Budgeted sales units

5,000

4,000

1,000

Actual selling prices per unit

£9.50

£10.80

£16.20

Actual sales units

6,300

2,500

2,200

The following is a summary of the variable costs incurred/budgeted for July 2018:

Product A

Product B

Product C

Budgeted variable manufacturing cost per unit

£4.00

£8.00

£11.00

Actual variable manufacturing cost per unit

£3.60

£8.10

£11.20

The company evaluated the performance of the sales department on the basis of the sales quantities and selling prices achieved.There is a proposal that staff would be paid a further bonus on the contribution of the products sold.

(a)Calculate:

  • Sales price variance
  • Sales volume variance
  • Sales mix variance
  • Sales quantity variance

(4)

(4)

(8)

(8)

(b)Comment on the results of the variance analysis calculated in part (a) and identify one possible reason for each of the variances calculated.

(6)

(c)Explain the factors that influence the decision to investigate a variance and describe the different methods that can be used to determine whether a variance should be investigated.

(5)

(35)

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