A company produces and sells a range of MP3 players. Budgeted annual demand, together with budgeted prices
Question:
A company produces and sells a range of MP3 players. Budgeted annual demand, together with budgeted prices and costs for 2021, which comprised 12 equal months, are:
Model: | Annual demand | Budgeted selling price | Standard cost |
units | £/unit | £/unit | |
De-luxe MP3 player | 36,000 | 100 | 80 |
Standard MP3 player | 120,000 | 75 | 60 |
Basic MP3 player | 60,000 | 55 | 45 |
The following financial results were achieved for the month of April 2021:
Model: | Actual sales | Actual revenue |
units | £000 | |
De-luxe MP3 player | 2,000 | 186 |
Standard MP3 player | 12,500 | 875 |
Basic MP3 player | 5,100 | 306 |
The company uses a standard product costing system but, in the event, no cost variances arose and therefore cost is not an issue in this case.
With the benefit of hindsight, it was realised that the budgeted sales price for De-luxe MP3 player of £100 was hopelessly optimistic, and a price of £90 per unit would have been much more realistic.Calculate the planning and operational price variances.
Cornerstones of Cost Management
ISBN: 978-1285751788
3rd edition
Authors: Don R. Hansen, Maryanne M. Mowen