MANAGEMENT ADVISORY SERVICES

I. Sales variances

A. Static-budget variance: difference between an actual result and a budgeted amount in

the static budget

1. Flexible-budget variance: difference, based on level of output actually achieved

(sold), between actual result and the flexible-budget amount—budgeted contribution
margin times actual unit volume sold

2. Sales-volume variance: effect on budgeted contribution margin of the difference

between actual quantity and budgeted quantity of units sold

B. Subdivisions of sales-volume variance

1. Sales-mix variance: difference between budgeted contribution margin for actual
sales mix and budgeted contribution margin for budgeted sales mix

a. Trade-off between products with greater contribution margin and those with
smaller contribution margins—and effect on profitability

b. Composite unit: hypothetical unit with weights based on mix of individual units

c. Reason for variance should be investigated

2. Sales-quantity variance: difference between (1) budgeted contribution margin based

on actual units sold of all products and the budgeted-mix and (2) contribution margin
in the static budget [budgeted units of all products to be sold and the budgeted mix]
a. Market-share variance: difference in budgeted contribution margin for actual
market size in units caused solely by the actual market share being different from
the budgeted market share

b. Market-size variance: difference in budgeted contribution margin at the budgeted

market share caused solely by the actual market size in units being different from
budgeted market size in units

c. Necessary to obtain reliable market share and size data to calculate the
variances

Review Questions

1. The static-budget variance will be favorable when

a. actual unit sales are less than budgeted unit sales.
b. the actual contribution margin is greater than the static-budget contribution margin.
c. the actual sales mix shifts toward the less profitable units.
d. the composite unit for the actual mix is greater than for the budgeted mix.

2. More insight into the sales-volume variance can be gained by subdividing it into
a. the sales-mix variance and the sales-quantity variance.
b. the market-share variance and the market-size variance.
c. the flexible-budget variance and the market-size variance.
d. a cost hierarchy.

3. The budgeted contribution margin per composite unit for the budgeted mix can be
computed by
a. dividing the total budgeted contribution margin by the actual total units.
b. dividing the total budgeted contribution margin by the total budgeted units.
c. dividing the actual total contribution margin by the total actual total units
d. dividing the actual total contribution margin by the total budgeted units.
4. The sales-mix variance results from a difference between the
a. actual market share and the budgeted market share.
b. actual contribution margin and the budgeted contribution margin.
c. budgeted contribution margin per composite unit for the actual mix and the budgeted
contribution margin per composite unit for the budgeted mix.
d. actual market size in units and the budgeted market size in units.

5. The sales-mix variance will be unfavorable when

a. the actual sales mix shifts toward the less profitable units.
b. the composite unit for the actual mix is greater than for the budgeted mix.
c. actual unit sales are less than budgeted unit sales.
d. the actual contribution margin is greater than the static-budget contribution margin.

6. The sales-mix variance will be favorable when

a. the actual contribution margin is greater than the static-budget contribution margin.
b. actual unit sales are less than budgeted unit sales.
c. the actual sales mix shifts toward the less profitable units.
d. the composite unit for the actual mix is greater than for the budgeted mix.

7. An unfavorable sales-mix variance would MOST likely be caused by

a. a new competitor providing better service in the high-margin product sector.
b. a competitor having distribution problems with high-margin products.
c. the company offering low-margin products at a higher price.
d. the company experiencing quality-control problems that get negative media coverage
of low-margin products.

8. A shift towards a mix of products with a lower contribution-margin per unit will MOST likely
result in
a. an unfavorable sales-mix variance.
b. an unfavorable sales-quantity variance.
c. a favorable sales-mix variance.
d. a favorable sales-quantity variance.

9. The sales-quantity variance will be unfavorable when

a. the composite unit for the actual mix is greater than for the budgeted mix.
b. actual unit sales are less than budgeted unit sales.
c. the actual contribution margin is greater than the static-budget contribution margin.
d. the actual sales mix shifts toward the less profitable units.

10. A favorable sales-quantity variance would MOST likely be caused by

a. a new competitor providing better service in the high-margin product sector.
b. a competitor having distribution problems with high-margin products.
c. the company offering low-margin products at a higher price.
d. the company experiencing quality-control problems that get negative media coverage
of low-margin products.

11. (Actual sales quantity in units - Static budget sales quantity in units) x Budgeted
contribution margin per unit =
a. the sales-volume variance.
b. the sales-mix variance.
c. the sales-quantity variance.
d. the market-share variance.

12. The sales-quantity variance results from a difference between

a. the actual sales mix and the budgeted sales mix.
b. the actual quantity of units sold and the budgeted quantity of unit sales in the static
budget.
c. actual contribution margin and the budgeted contribution margin.
d. actual market size in units and the budgeted market size in units.
13. More insight into the sales-quantity variance can be gained by subdividing it into
a. the sales-mix variance and the sales-volume variance.
b. the market-share variance and the market-size variance.
c. the flexible-budget variance and the sales-volume variance.
d. a cost hierarchy.

14. The market-share variance results from a difference between the

a. actual market share and the budgeted market share.
b. actual contribution margin and the budgeted contribution margin.
c. budgeted contribution margin per composite unit for the actual mix and the budgeted
contribution margin per composite unit for the budgeted mix.
d. actual market size in units and the budgeted market size in units.

15. The market-share variance will be favorable when

a. the flexible-budget contribution margin is greater than the static-budget contribution
margin.
b. the actual market share is greater than the budgeted market share.
c. actual market size in units is less than budgeted market size in units.
d. actual unit sales are less than budgeted unit sales.

16. The market-share variance is MOST influenced by

a. economic downturns in the economy.
b. how well managers perform relative to their peers.
c. shifts in consumer preferences that are outside of the manager’s control.
d. rates of inflation.

17. An unfavorable market-share variance would MOST likely be caused by

a. a competitor providing better service.
b. a competitor having distribution problems.
c. the company offering products at a lower price.
d. the company experiencing quality-control problems that get negative media coverage.

18. The market-size variance results from a difference between the

a. actual market share and the budgeted market share.
b. actual contribution margin and the budgeted contribution margin.
c. budgeted contribution margin per composite unit for the actual mix and the budgeted
contribution margin per composite unit for the budgeted mix.
d. actual market size in units and the budgeted market size in units.

19. The market-size variance will be unfavorable when

a. the flexible-budget contribution margin is greater than the static-budget contribution
margin.
b. the actual market share is greater than the budgeted market share.
c. actual market size in units is less than budgeted market size in units.
d. actual unit sales are less than budgeted unit sales.

20. A favorable market-size variance would MOST likely be caused by

a. the company reducing the services provided to customers.
b. an increase in overall market size.
c. a new competitor moving into the area.
d. a competitor providing better prices.
21. Reliable information about market size and market share is available
a. for no industries.
b. for the management consulting and personal financial planning industries.
c. for the automobile and television industries.
d. for all industries.
22. Casablanca Inc. has a practical production capacity of two million units. The current
year's budget was based on the production and sales of 1.4 million units during the current
year. Actual statistics came out to be production of 1.44 million units and sales of 1.2 million
units. Selling price is at P20 each and the contribution margin ratio is 30%. The peso value
that best quantifies the marketing division's failure to achieve budgeted performance for the
current year is
a. P4,800,000 unfavorable c. P1,440,000 unfavorable
b. P4,000,000 unfavorable d. P1,200,000 unfavorable

23. From the records of Green Ann Co the following were taken:
Quantity Sales Cost of Sales
Product Budget Actual Budget Actual Budget Actual
Green 45,000 45,800 450,000 458,000 270,000 274,800
Ann 30,000 26,700 180,000 186,900 108,000 96,120
Co 5,000 9,300 25,000 55,800 15,000 27,900
Total 80,000 81,800 655,000 700,700 393,000 398,820

Determine the sales price (SP), sales volume (SV), cost price (CP) and cost volume
(CV) variances:
a. SP is P9,700 favorable; SV is P36,000 favorable; CP is P5,820 favorable: and CV
is P0 unfavorable
b. SP is P5,820 favorable; SV is P0 favorable; CP is P36,700 favorable; SV is P9,000
favorable
c. SP is P36,000 favorable; SV is P9,700 favorable; CP is P0; and CV is P5,820
unfavorable
d. SP is P36,700 favorable; SV is P5,820 unfavorable; CP is P0 unfavorable; and CV is
P9,000 favorable

24. Asia Manufacturing Co., a multi-product firm, has the following data available for gross
profit analysis:
Product A Product B Product C
20x8
Selling price P10.00 P12.00 P6.00
Cost of sales 8.00 9.00 4.50
# of units 5,000 3,000 2,000
Total Market Size 100,000 units

20x9
Selling price P11.00 P11.50 P6.80
Cost of sales 7.60 8.75 5.00
# of units 5,400 3,500 3,600
Total Market Size 156,250 units

Compute for the revenue variances.

25. The management of Baguio Co. asked you to submit an analysis of the increase in their
gross profit in 20x8 based on their past two-year comparative income statements which show:
20x9 20x8
Sales P1,237,500 P1,000,000
Cost of sales 950,400 800,000
Gross profit 287,100 200,000

The only known factor given to you is the sales prices increased 12.5% beginning
January 20x9.

Compute for the revenue variances.

26. Ming Company manufactures one product. Its budget and operating results for 20x7 are:
Budgeted Actual
Units sold 90,000 100,000
Unit contribution margin P8 P10
Unit selling price P20 P21

Industry volume was estimated to be 1,500,000 units at the time the budget was
prepared. Actual industry volume for the period was 2 million units.

The market size variance is

a. P160,000 u b. P80,000 u c. P240,000 u d. P240,000 f

The market share variance is

a. P160,000 u b. P80,000 f c. P240,000 u d. P240,000 f

The sales quantity variance is

a. P160,000 u b. P80,000 f c. P80,000 u d. P160,000 f

27. Chips Co. sells two IC’s to small machine tool manufacturers: R66 and R100. Pertinent data
for 20x7:
Budgeted Actual
R66 R100 R66 R100
Selling price per chip 50.00 160.00 55.00 155.00
Variable cost per chip 40.00 90.00 43.00 95.00
Contribution margin 10.00 70.00 12.00 60.00
Fixed cost per chip 6.00 30.00 5.00 25.00
Operating income 4.00 40.00 7.00 35.00
Sales units 1,200 400 1,000 1,000

What is the R66 sales quantity variance?

a. P400 f b. P1,000 f c. P1,200 f d. P3,000 f

What is the R100 sales mix variance?

a. P20,000 f b. P30,000 f c. P35,000 f d. P40,000 f

What is the total sales volume variance?

a. P10,000 f b. P12,400 f c. P22,000 f d. P40,000 f

Ceylon Tea Products has an exclusive contract with British Distributors. Calamine and Ceylon
are two brands of teas that are imported and sold to retail outlets. The following information is
provided for the month of March:
Actual Budget

Calamine Ceylon Calamine Ceylon

Sales in pounds 1,700 lbs. 1,800 lbs. 2,000 lbs. 1,500 lbs
Price per pound P2.50 P2.50 P2.00 P3.00
Variable cost per pound 1.00 2.00 1.00 1.50

Contribution margin P1.50 P0.50 P1.00 P1.50

Budgeted and actual fixed corporate-sustaining costs are P1,750 and P2,000, respectively.

28. What is the actual contribution margin for the month?

a. P3,750 b. P4,400 c. P4,250d. P3,450
29. What is the contribution margin for the flexible budget?
a. P3,750 b. P4,400 c. P4,250d. P3,450
30. For the contribution margin, what is the total static-budget variance?
a. P300 favorable
b. P950 unfavorable
c. P500 favorable
d. P800 unfavorable

31. For the contribution margin, what is the total flexible-budget variance?
a. P300 favorable
b. P950 unfavorable
c. P500 favorable
d. P800 unfavorable

Edna’s Flowering Plants provides the following information for the month of May:
Actual Budget

Tulips Geraniums Tulips Geraniums

Sales in units 1,950 1,800 2,250 1,500
Contribution margin per unit P11 P18 P10 P20
32. What is the budgeted contribution margin per composite unit for the actual mix?
a. P13.80 b. P14.00 c. P14.36 d. P14.80

33. What is the budgeted contribution margin per composite unit for the budgeted mix?
a. P13.80 b. P14.00 c. P14.36 d. P14.80

34. For May, Edna will report

a. a favorable sales-mix variance.
b. an unfavorable sales-mix variance.
c. a favorable sales-volume variance.
d. an unfavorable sales-volume variance.

Edna’s Flowering Plants provides the following information for the month of May:
Actual Budget

Fuchsia Dogwood Fuchsia Dogwood

Sales in units 10,000 2,500 8,000 2,000
Contribution margin per unit P9 P7 P10 P8

35. What is the budgeted contribution margin per composite unit for the actual mix?
a. P8.00 b. P8.60 c. P9.00 d. P9.60

36. What is the budgeted contribution margin per composite unit for the budgeted mix?
a. P8.00 b. P8.60 c. P9.00 d. P9.60

37. For May, Edna will report

a. a favorable sales-mix variance.
b. an unfavorable sales-mix variance.
c. a favorable sales-volume variance.
d. an unfavorable sales-volume variance.

The XTRA Appliance Manufacturing Corporation manufactures two vacuum cleaners, the
Standard and the Super. The following information was gathered about the two products:
Standard Super
Budgeted sales in units 3,200 800
Budgeted selling price P300 P850
Budgeted contribution margin per unit P210 P550
Actual sales in units 3,500 1,500
Actual selling price P325 P840

38. What is the budgeted sales-mix percentage for the Standard and the Super vacuum
cleaners, respectively?
a. 0.80 and 0.20
 b. 0.70 and 0.30
c. 0.20 and 0.80
d. 0.30 and 0.70

39. What is the total sales-volume variance in terms of the contribution margin?
a. P108,000 unfavorable
b. P108,000 favorable
c. P278,000 favorable
d. P448,000 favorable

40. What is the total sales-quantity variance in terms of the contribution margin?
a. P110,000 favorable
b. P170,000 favorable
c. P278,000 favorable
d. P448,000 favorable

41. What is the total sales-mix variance in terms of the contribution margin?
a. P110,000 favorable
b. P170,000 favorable
c. P278,000 favorable
d. P448,000 favorable

Zorro Company manufactures remote control devices for garage doors. The following
information was collected during June:

Actual market size (units) 10,000

Actual market share 32%
Actual average selling price P10.00
Budgeted market size (units) 11,000
Budgeted market share 30%
Budgeted average selling price P11.00
Budgeted contribution margin per
composite unit for budgeted mix P 5.00

42. What is the market-size variance?

a. P500 U b. P1,500 U c. P1,600 F d. P1,000 F

43. What is the market-share variance?

a. P1,000 F b. P1,100 F c. P500 U d. P1,500 U

44. What is the sales-quantity variance?

a. P1,500 U b. P1,000 F c. P500 U
d. The variance cannot be determined.

The Sasita Corporation manufactures two types of vacuum cleaners, the ZENITH for
commercial building use and the House-Helper for residences. Budgeted and actual operating
data for the year 20x3 were as follows:

Static Budget ZENITH House-Helper Total

Number sold 5,000 20,000 25,000

Contribution margin P1,500,000 P3,000,000 P4,500,000

Actual Results ZENITH House-Helper Total

Number sold 4,000 28,000 32,000

Contribution margin P1,280,000 P3,920,000 P5,200,000
Prior to the beginning of the year, a consulting firm estimated the total volume for vacuum
cleaners of the ZENITH and House-Helper category to be 250,000 units, but actual industry
volume was 256,000 units.

45. What is the contribution margin for the flexible budget?

a. P1,200,000
b. P4,200,000
c. P5,200,000
d. P5,400,000

46. What is the total static-budget variance in terms of the contribution margin?
a. P900 favorable
b. P700 favorable
c. P200 unfavorable
d. P360 unfavorable

47. What is the total flexible-budget variance in terms of the contribution margin?
a. P900 favorable
b. P700 favorable
c. P200 unfavorable
d. P360 unfavorable

48. What is the total sales-volume variance in terms of the contribution margin?
a. P900 favorable
b. P1,260 favorable
c. P200 unfavorable
d. P360 unfavorable

49. What is the total sales-quantity variance in terms of the contribution margin?
a. P200 unfavorable
b. P900 favorable
c. P360 unfavorable
d. P1,260 favorable

50 What is the total sales-mix variance in terms of the contribution margin?

a. P200 unfavorable
b. P360 unfavorable
c. P900 favorable
d. P1,260 favorable

51. What is the budgeted contribution margin per composite unit of the budgeted mix?
a. P140.625
b. P180.000
c. P208.000
d. P162.500

52. What is the market-size variance?

a. P1,152,000 F
b. P108,000 F
c. P360,000 U
d. P1,260,000 F

53. What is the market-share variance?

a. P360,000 U
b. P1,260,000 F
c. P1,152,000 F
d. P108,000 F
Short Problems
Items 1 to 3 are based on the following data:

The gross profit of RC Company for each of the years ended December 31 are as
follows:
20x8 20x9
Sales P800,000 P792,000
Cost of goods sold 480,000 464,000
Gross profit 320,000 328,000
The 2019 selling prices were 10% lower.

1. What would be the decrease in gross profit due to the change in selling price?
a. P72,000b. P79,200 c. P80,000 d. P88,000

2. What would be the increase/decrease in sales due to the change in units sold?
a. P(80,000)b. P(88,000) c. P80,000 d. P88,000

3. What would be the increase/decrease in cost of sales due to the change in units sold?
a. P40,000b. P48,000 c. P(40,000) d. P(48,000)

Items 4 and 5 are based on the following information:

The actual and budget data about the product sales of AC Company is shown below:
Actual units sold 8,000
Budgeted units to be sold 10,000
Actual sales P92,000
Budgeted sales P105,000

4. Based on the above data, the sales price variance is

a. P8,000 f b. P8,000 u c. P10,000 f d. P10,000 u

5. How much is the sales volume variance?

a. P21,000 f b. P21,000 u c. P23,000 f d. P23,000 u

Items 6 and 7 are based on the following information:

GC Company which sells a single product, produced the following data from its income
statement for the calendar years 20x9 and 20x8

20x9 20x8
Units sold 150,000 180,000
Sales P750,000 P720,000
Cost of sales 525,000 575,000
Gross profit 225,000 145,000

6. In an analysis of variation of gross profit, what would be the effect of changes in sales price?
a. P150,000 f b. P150,000 u c. P180,000 f d. P180,000 u

7. In an analysis of variation of gross profit, what would be the effect of changes in sales volume?
a. P150,000 f b. P150,000 u c. P120,,000 f d. P120,000 u
Items 8 to 11 are based on the following data:

The management of BC Company asked you to submit an analysis of the increase in

their gross profit in year 20x9 based on their past two-year comparative income statements that
show:

20x9 20x8
Sales P1,237,500 P1,000,000
Cost of sales 950,000 800,000
Gross profit 287,500 200,000

At the beginning of the year 20x9, sales prices increased by 12.5%.

8. The increase in gross profit due to increase in sales price is

a. P100,000 b. P137,500 c. P110,000 d. P125,000

9. The percentage change in volume is

a. 15.25% b. 12.75% c. 11% d. 10%

10. The increase in gross profit due to increase in sales volume is

a. P50,000 b. P30,000 c. P25,000 d. P20,000

11. The decrease in gross profit due to increase in costs is

a. P70,000 b. P88,000 c. P97,500 d. P100,000

Items 12 to 17 are based on the following information:

The president of PC Company would like to know other factors that changed the gross
margin aside from the 8% higher sales units of 20x9 compared to 20x8. The following
information is presented to you:

20x8 20x9
Net sales P420,000 P426,384.00
Cost of sales 243,600 276,242.40
Gross margin 176,400 150,141.60

Based on the following information, an analysis of changes in gross margin would show:

12. An increase in sales due to volume of

a. P33,600 b. P34,110.72 c. P27,216 d. P30,000

13. An increase (decrease) in cost of sales due to volume of

a. P13,154.40 b. P19,488 c. P(13,154.40) d. P(19,488)

14. An increase (decrease) in net sales due to sales price of

a. P33,600 b. P27,216 c. P(33,600) d. P(27,216)

15. A percent increase (decrease) in selling price of

a. 6% b. (6%) c. 5% d. (5%)

16. An increase (decrease) in cost of sales due to cost factor of

a. P19,488 b. P(13,154.40) c. P13,154.40 d. P(19,488)

17. A percent increase (decrease) in unit cost of

a. 8% b. (6%) c. 5% d. (5%)
Items 18 – 21 are based on the following information:

BM Company manufactures three consumer products, X, Y, and Z. Sales and other

information related to the said products are as follows:

20x8 Units Unit Price Total Sales Cost of Sales

X 15,000 P10 P150,000 P120,000
Y 20,000 8 160,000 140,000
Z 5,000 6 30,000 22,500

20x9
X 20,000 P12 P240,000 P180,000
Y 20,000 9 180,000 150,000
Z 4,000 5 20,000 16,000

Based on the following information, an analysis of changes in gross margin would show
the following changes:

18. The sales price factor shows a variance of

a. P56,000 f b. P100,000 u c. P100,000 f d. P56,000 u

19. The cost price factor shows a variance of

a. P28,000 f b. P28,000 u c. P63,500 f d. P63,500 u

20. The quantity factor shows a variance of

a. P4,000 f b. P4,000 u c. P5,750 f d. P5,750 u

21. The sales-mix factor shows a variance of

a. P2,500 f b. P2,500 u c. P2,750 f d. P2,750 u

Items 22 to 25 are based on the following information:

For the year ended December 31, 20x8 and 20x9 the following data were presented to
the management of LB Company:
Net Sales Cost of Sales Gross Margin
20x9 P1,363,000 P911,800 P451,200
20x8 1,250,000 776,000 474,000

The management requested you to determine the cause of the decline in gross profit on
sales in spite of the favorable information given by the Sales Division that the quantity sold in
20x9 was higher than in 20x8 and that the production costs in 20x9 were lower than that of 20x8
by 6%.

22. The percentage change in volume is

a. 25% b. 20% c. 17.5% d. 14%

23. The increase (decrease) in cost of sales due to cost factor is

a. (P135,800) b. P135,800 c. (P58,200) d. P58,200

24. The increase (decrease) in net sales due to volume factor is

a. (P194,000) b. P194,000 c. (P312,500) d. P312,500

25. The increase (decrease) in net sales due to price factor is

a. (P113,000) b. P113,000 c. (P199,500) c. P199,500