Reference no: EM131773045

True Religion Brand Jeans (TR) was established in December of 2002 to take denim in a refreshing new direction." TR produces both regular jeans and "distressed" (or broken in) jeans. Regular jeans and distressed jeans are exactly the same, except that the distressed jeans require machine time on the ageing machines to give them the distressed look. Regular jeans spend no time on the ageing machine.

TR uses a standard costing system. TR splits all costs into four cost pools: direct materials, which represent the cost of denim used to make the jeans, variable overhead for the standard machine, which includes all other variable costs except those related to the ageing machine, variable overhead costs related to the ageing machine and fixed overhead costs. Overhead is allocated based on the number of machine minutes used to produce the jeans. All machines are considered identical for cost allocation purposes (so one minute on a sewing machine is equal to one minute on an "ageing" machine).

For calendar year 2007, True Religion expects to produce 120,000 pairs of regular jeans and 24,000 pairs of distressed jeans (for a total of 144,000 pairs of jeans). They hoped to sell the regular jeans for $80 per pair and the distressed jeans for $125 per pair. The budgeted cost was:

See Bailey's Attach 1

The above estimates are based on a total of 1,800,000 machine minutes (including 72,000 machine minutes for the ageing machines). During 2007, True Religion actually produces 125,000 pairs of regular jeans and 22,000 pairs of distressed jeans (for a total of 147,000 pairs of jeans). All jeans produced were sold, the regular jeans sold for $75 per pair and the distressed jeans sold for $125 per pair. Total costs were $2,951,790, which included $895,230 in direct material and $535,040 in variable overhead costs ($21,400 related to the ageing machine and $513,640 related to the standard machine). Production required 308,700 yards of denim and 1,672,000 machine minutes (including 55,000 machine minutes for the ageing machines).

Analyze the difference between the original budgeted sales number and the actual sales number for regular jeans. Quantitatively disentangle the reasons for the difference (i.e., sales volume variance and sales price variance).

What could have caused the sales volume variance (qualitatively)? (provide at least two possible reasons)