McIntosh Company expected to sell 400,000 of its pagers during 2009. It set the standard sales price for the pager at $30 each. During June, it became obvious that the company would be unable to attain the expected volume of sales. McIntosh’s chief competitor, Coker, Inc., had lowered prices and was pulling market share from McIntosh. To be competitive, McIntosh matched Coker’s price, lowering its sales price to $28 per pager. Coker responded by lowering its price even further to $24 per pager. In an emergency meeting of key personnel, McIntosh’s accountant, Patricia Lowell, stated, “Our cost structure simply won’t support a sales price in the $24 range.” The production manager, Gary Thomas, said, “I don’t understand why I’m here. The only unfavorable variance on my report is a fixed cost volume variance and that one is not my fault. We can’t be making the product if the marketing department isn’t selling it.”
Required
a. Describe a scenario in which the production manager is responsible for the fixed cost volume variance.
b. Describe a scenario in which the marketing manager is responsible for the fixed cost volume variance.
c. Explain how a decline in sales volume would affect McIntosh’s ability to lower its sales price.