Renee’s Rings manufactures college rings. Two models are produced: The Spirit mo
ID: 2484670 • Letter: R
Question
Renee’s Rings manufactures college rings. Two models are produced: The Spirit model with a budgeted price of $530 and a standard variable cost of $230. The Chancellor model has a budgeted price of $1,230 and a standard variable cost of $430. At the beginning of the year, Renee estimated that she would sell 1,700 Chancellor rings and 8,300 Spirit rings. The actual results for the year showed that 2,100 Chancellor rings were sold for total revenues of $2,268,000. A total of 9,400 Spirit rings were sold for revenues of $5,217,000.
Required: (a) Compute the activity variance for Renee’s Rings for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round your intermediate calculations.)
(b) Compute the mix AND quantity variances for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round your intermediate calculations.)
Explanation / Answer
a) activity variance = ( Budgeted sales - actual sales ) * Budget contribution margin per unit
Spirit model= (8,300 - 9,400) *$300
=$330,000 (U)
Chancellor model =1,700-2,100 *$800
=$320,000(U)
Actual sales is higher than Budgeted sales so unfavorable variance
Budget contribution margin = Price -Varibale cost
Spirit model= $530-$230
=$300
Chancellor model =$1,230 - $430
=$800
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Mix Variances =
Chancellor rings = 1700 /10000 (1,700 + 8,300=10,000)
=0.17*100
=17%
Spirit model =8300/10000*100=83%
Actual sales= 2,100+ 9,400=11,500
Chancellor rings =11,500 * 17%=1955
Spirit model=11,500 *83/100=9545
Difference = Actual sales - sales quantities mix
Chancellor rings= 2,100 - 1955=145(F)
Spirit model=9,400-9545=145(U)
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Budget contribution margin = Price -Varibale cost
Spirit model= $530-$230
=$300
Chancellor model =$1,230 - $430
=$800
variance
Spirit model= 145(F) * $300=$43,500F
Chancellor model=145(U)* $800=$116,000U
Individual Variance =$116,000 - $43,500
=$72,500U
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