Variance analysis, working backward.

The Hiro Corporation sells two brands of wine glasses:

Plain and Chic. Hiro provides the following information for sales in the month of June 2017:

All variances are computed in contribution-margin terms.

1. Calculate the sales-quantity variances for each product for June 2017.
2. Calculate the individual-product and total sales-mix variances for June 2017. Calculate the
individual product and total sales-volume variances for June 2017.
3. Briefly describe the conclusions you can draw from the variances.

(30 min.) Variance analysis, working backward.

1. and 2. Solution Exhibit 14-26 presents the sales-volume, sales-quantity, and sales-mix
variances for the Plain and Chic wine glasses and in total for Hiro Corporation in June 2017. The
steps to fill in the numbers in Solution Exhibit 14-26 follow:

Step 1
Consider the static budget column (Column 3):

Static budget total contribution margin $15,525

Budgeted units of all glasses to be sold 2,300
Budgeted contribution margin per unit of Plain $ 5
Budgeted contribution margin per unit of Chic $ 12

Suppose that the budgeted sales-mix percentage of Plain is y. Then the budgeted sales-mix
percentage of Chic is (1 – y). Therefore,

(2,300y  $5) + (2,300  (1 – y)  $12) = $15,525

$11,500y + $27,600 – $27,600y = $15,525
$16,100y = $12,075
y = 0.75 or 75%
1–y = 25%

Hiro’s budgeted sales mix is 75% of Plain and 25% of Chic. We can then fill in all the numbers
in Column 3.

Step 2
Next, consider Column 2 of Solution Exhibit 14-26.
The total of Column 2 in Panel C is $12,825 (the static budget total contribution margin of
$15,525 – the total sales-quantity variance of $2,700 U which was given in the problem).

We need to find the actual units sold of all glasses, which we denote by q. From Column 2, we
know that

(q  0.75  $5) + (q  0.25  $12) = $12,825

$3.75q + $3q = $12,825
$6.75q = $12,825
q = 1,900 units

So, the total quantity of all glasses sold is 1,900 units. This computation allows us to fill in all the
numbers in Column 2.