Reference no: EM133135064
Question - Arrow Manufacturing Inc. (AMI) manufactures gadgets. It makes two types, the A-100 and the B-200. The marketing group has reviewed the year-end profitability reports but are unsure as to how well the company fared compared to the original budget.
AMI anticipated combined sales volume of 144,000 units, for the A-100 and the B-200, when it developed the current year budget. The A-100 had typically accounted for 75% of the company's sales in the past and senior management had used that percentage in calculating the current year's budget, although he was hopeful that the B-200's proportion would grow.
In the budget, the A-100 had a unit selling price of $525.00. Variable manufacturing costs were budgeted at $300.00 per unit. The only variable operating cost was a commission of 8% of the unit selling price that was paid to the sales representatives. The B-200 is a higher quality gadget that uses better materials and is more labour intensive to manufacture than the A-100. The B-200 was budgeted to sell at $900.00. The variable manufacturing costs were budgeted at 45% of the budgeted selling price. The commission paid on the B-200 was 10% in order to encourage sales. 2020 was a difficult year and sales were lower than anticipated. In an attempt to retain market share, the selling price of the A-100 was reduced by 10% and by 8% on the B-200. Sales commissions, based on the unit selling price, remained at 8% for the A-100 and 10% on the B-200.
Following is a summary of other relevant product information for the year:
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A-100
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B-200
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Budgeted sales volume
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108,000
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36,000
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Actual sales volume
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97,200
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43,200
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Actual variable manufacturing costs per unit
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$290.00
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$450.00
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Fixed manufacturing and fixed marketing costs were very close to budget. Anticipated industry volume was 1,440,000 units per year. Actual industry volume was 6% higher than anticipated.
Required -
1. What was the budgeted contribution (in total and for each product) for the current year?
2. What was the actual contribution (in total and for each product) for the current year?
3. Create a variance analysis from the information provide by calculating the following variances:
1. Flexible budget variance for both products.
2. Sales volume variance for both products.
3. Sales quantity variance for both products.
4. Mix variance for both products.
4. Calculate the market size and market share variance for the gadgets.
5. Assess the company's performance for the year.
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