Kalamazoo Computer Accessory Company (KCAC) distributes keyboard trays to computer stores. The keyboard trays can be attached to the underside of a desk, effectively turning it into a computer table. The keyboard trays are purchased from a manufacturer that attaches KCAC€™s private label to the trays. The wholesale selling prices to the computer stores are $120 for the business grade keyboard tray and $60 for the residential grade product. The 20x5 budget and actual results are as follows. The budget was adopted in late 20x4 and was based on KCAC€™s estimated share of the market for the two types of keyboard trays.

During the first quarter of 20x5, management estimated that the total market for these products actually would be 10 percent below the original estimates. In an attempt to prevent unit sales from declining as much as industry projections, management implemented a marketing program. Included in the program were dealer discounts and increased direct advertising. The business grade line was emphasized in this program.

Required:
1. Compute the sales-price and sales-volume variances for each product line. Indicate whether each variance is favorable or unfavorable.
2. Discuss the apparent effect of KCAC€™s special marketing program (i.e., dealer discounts and additional advertising) on the 20x5 operating results.
(CMA,adapted)

KALAMAZOO COMPUTER ACCESSORY COMPANY Income Statement For the Year Ending December 31, 20x5 (in thousands) Business Grade Residential Grade Total Budget Actual Budt At Budget Actual Variance Sales in units Revenue Cost of goods sold Gross margin Unallocated costs: 100 $4,800 $4255 $3,600 $2,537 $8,400 $6,792 $1608) 3200 3,034 3000 2,150 6,200 5,184 1,016 $1,600 $1,221 $600 387 $2,200 $1,608 $(592) $ 500 500 - Advertising Administrative Income taxes (45%) 450 $1,650 $1,402248 550 $ 206 $ (344) 169 Total unallocated costs