The Software Development Company produces computer programs on DVDs for
The Software Development Company produces computer programs on DVDs for home computers. This business is highly automated, causing fixed costs to be very high, but variable costs are minimal. The company is organized along three product lines: games, business programs, and educational programs. The average standard selling prices for each are $16 for games, $55 for business programs, and $20 for educational programs. The standard variable cost consists solely of one DVD per program at $2.00 per DVD, without regard to the type of program. Fixed costs for the period were estimated at $535,000. For the current period, standard sales are 40,000 games, 2,000 business programs, and 10,000 educational programs. Actual results are as follows.

A. Calculate standard pretax income and then reconcile it to actual pretax income by calculating the contribution margin sales mix variance, revenue sales quantity variance, sales price variance, materials price and quantity variances, and the fixed cost spending variance.
B. A new marketing manager was hired during the period. The manager changed prices and redirected sales efforts.
1. Discuss whether one or more of the preceding variances are relevant to evaluating the performance of the new marketing manager.
2. What do the variances suggest about the new manager’s performance? Explain.
C. An analysis reveals that the company will have to pay $1.80 per DVD next period. Prepare next period’s master budget. Assume a standard of one disk per program, total unit sales of 55,000, and the actual sales mix and sales prices from this period.
D. Discuss possible reasons why the company might not meet its budget for nextperiod.
Membership TRY NOW
  • Access to 800,000+ Textbook Solutions
  • Ask any question from 24/7 available
  • Live Video Consultation with Tutors
  • 50,000+ Answers by Tutors
Relevant Tutors available to help