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Eastman, Inc., manufactures and sells three products: R, S, and T. In January, Eastman, Inc., budgeted sales of the following. At the end of the year, actual sales revenue for Product R and Product S was $3,075,000 and $3,254,000, respectively. The actual price charged for Product R was $25 and for Product S was $20. Only $10 was charged for Product T to encourage more consumers to buy it, and actual sales revenue equaled $540,000 for this product. Required: 1. Calculate the sales price and sales volume variances for each of the three products based on the original budget. 2. Suppose that Product T is a new product just introduced during the year. What pricing strategy is Eastman, Inc., following for this product?

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 18, Problem 20E
Textbook Problem
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Eastman, Inc., manufactures and sells three products: R, S, and T. In January, Eastman, Inc., budgeted sales of the following.

Chapter 18, Problem 20E, Eastman, Inc., manufactures and sells three products: R, S, and T. In January, Eastman, Inc.,

At the end of the year, actual sales revenue for Product R and Product S was $3,075,000 and $3,254,000, respectively. The actual price charged for Product R was $25 and for Product S was $20. Only $10 was charged for Product T to encourage more consumers to buy it, and actual sales revenue equaled $540,000 for this product.

Required:

  1. 1. Calculate the sales price and sales volume variances for each of the three products based on the original budget.
  2. 2. Suppose that Product T is a new product just introduced during the year. What pricing strategy is Eastman, Inc., following for this product?

1.

To determine

Compute the sales price variance and sales volume variance for given products using the original budget.

Explanation of Solution

Sales price variance: Sales price variance is the difference between the actual price and standard price multiplied by the actual quantity sold.

Sales price variance=(Actual priceExpected price)×Quantity sold

Sales volume variance: Sales volume variance is the difference between the actual quantity sold and standard price multiplied by the expected price.

Sales volume variance=(Actual quantityExpected quantity)×Expected price

For Product R

Determine the sales price variance:

Sales price variance=(Actual priceExpected price)×Quantity sold=($25.00$26.00)×123,000=$1×123,000=$123,000 (Unfavorable)

Determine the sales volume variance:

Sales volume variance=(Actual quantityExpected quantity)×Expected price=(123,000120,000)×$26=3,000 units×$26=$78,000 (Favorable)

Working note 1: Compute the actual Quantity sold:

Sales revenue is $3,075,000 and sales price per unit is $25.

Actual Quantity sold = Sales revenue / Sales price per unit=$3,075,000/$25=123,000 units.

For Product S

Determine the sales price variance:

Sales price variance=(Actual priceExpected price)×Quantity sold=($20.00$22

2.

To determine

Explain the pricing strategy to be followed by Incorporation E, if the Product T is newly added.

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Chapter 18 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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