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14-32 (Cont’d.)

Solution Exhibit 14-32 presents the sales-volume variance, the sales-mix variance, and the sales-quantity variance for Palm Pro, Palm CE, and PalmKid and in total for Third Quarter 2004

SOLUTION EXHIBIT 14-32

Sales-Mix and Sales-Quantity Variance Analysis of Aussie Infonautics for Third Quarter 2004

Flexible Budget:Static Budget:

Actual Units ofActual Units ofBudgeted Units of

Actual Sales Mix Budgeted Sales Mix Budgeted Sales Mix

Budgeted Contribution Budgeted Contribution Budgeted Contribution

Margin Per UnitMargin Per UnitMargin Per Unit

Palm Pro110,000 0.10 \$197 =\$  2,167,000       110,000 0.125 \$197 =\$  2,708,750      100,000 0.125 \$197 =\$  2,462,500

PalmCE110,000 0.40 \$171 =    7,524,000       110,000 0.375 \$171 =    7,053,750      100,000 0.375 \$171 =    6,412,500

PalmKid110,000 0.50 \$  84 =    4,620,000       110,000 0.50    \$  84 =    4,620,000      100,000 0.50    \$  84 =    4,200,000

\$14,311,000                                                 \$14,382,500                                                \$13,075,000

\$71,500 U\$1,307,500 F

Sales-mix varianceSales-quantity variance

\$1,236,000 F

Sales-volume variance

F = favorable effect on operating income; U= unfavorable effect on operating income

4.    The following factors help us understand the differences between actual and budgeted amounts.

The difference in actual versus budgeted contribution margins was \$1,107,000 unfavorable (\$11,968,000 \$13,075,000). However, the contribution margin from the PalmCE exceeded budget by \$2,079,500 while the contributions from the PalmPro and the PalmKid were lower than expected and offset this gain. This is attributable to lower unit sales in the case of PalmPro and lower contribution margins in the case of PalmKid.

In percentage terms, the PalmCE accounted for 71% of actual contribution margin versus a planned 49% contribution margin. However, the PalmPro accounted for 16% versus planned 19% and the PalmKid accounted for only 13% versus a planned 32%.

In unit terms (rather than in contribution terms), the PalmKid accounted for 50% of the sales mix as planned.  However, the PalmPro accounted for only 10% versus a budgeted 12.5% and the PalmCE accounted for 40% versus a planned 37.5%.

Variance analysis for the PalmPro shows an unfavorable sales-mix variance outweighing a favorable sales-quantity variance and producing an unfavorable sales-volume variance.  The drop in sales-mix share was far larger than the gain from an overall greater quantity sold.

The PalmCE gained both from an increase in share of the sales mix as well as from the increase in the overall number of units sold.

The PalmKid maintained sales-mix share at 50%––as a result, the sales-mix variance is zero.  However, PalmKid sales did gain from the overall increase in units sold.

14-40

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