Chapter 15, Problem 9E

Exercise 8-9A Responsibility for the fixed cost volume variance

Roanoke Company expected to sell 400,000 of its pagers during 2018. It set the standard sales price for the pager at $60 each. During June, it became obvious that the company would be unable to attain the expected volume of sales. Roanoke’s chief competitor, Kenny Corporation, had lowered prices and was pulling market share from Roanoke. To be competitive, Roanoke matched Kenny’s price, lowering its sales price to $56 per pager. Kenny responded by lowering its price even further to $48 per pager. In an emergency meeting of key personnel, Roanoke’s accountant, Karen Velez, stated, “Our cost structure simply won’t support a sales price in the $48 range.” The production manager, Gene Cormier, said, “I don’t understand why I’m here. The only unfavorable variance on my report is a fixed manufacturing overhead cost volume variance and that one is not my fault. We shouldn’t be making the product if the marketing department isn’t selling it.”

Required

1. a. Describe a scenario in which the production manager is responsible for the fixed cost volume variance.
2. b. Describe a scenario in which the marketing manager is responsible for the fixed cost volume variance.
3. c. Explain how a decline in sales volume would affect Roanoke’s ability to lower its sales price.