A company's master budget for October is to manufacture and sell 30,000 units, for a total sales revenue of $270,000, total variable costs of $180,000, and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units, and generated $45,000 of operating income in October.

The sales volume variance, in terms of operating income, for October (rounded to the nearest whole dollar) was:
A) $3,600 favorable.
B) $6,000 favorable.
C) $15,400 favorable.
D) $21,000 favorable.

Question

A company's master budget for October is to manufacture and sell 30,000 units, for a total sales revenue of $270,000, total variable costs of $180,000, and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units, and generated $45,000 of operating income in October.

The sales volume variance, in terms of operating income, for October (rounded to the nearest whole dollar) was:

The sales volume variance, in terms of operating income, for October (rounded to the nearest whole dollar) was:
A) $3,600 favorable.
B) $6,000 favorable.
C) $15,400 favorable.
D) $21,000 favorable.

Quizplus · Accepted Answer

The sales volume variance in terms of operating income is calculated by determining the difference between the budgeted profit and the actual profit, adjusted for the actual volume of units sold. The budgeted profit per unit is calculated as follows: Total budgeted profit = Total sales revenue - Total variable costs - Total fixed costs = $270,000 - $180,000 - $24,000 = $66,000. Budgeted profit per unit = $66,000 / 30,000 units = $2.2 per unit. The sales volume variance = (Actual units sold - Budgeted units sold) x Budgeted profit per unit = (32,000 units - 30,000 units) x $2.2 = 2,000 units x $2.2 = $4,400. However, since none of the options match this calculation and a mistake was made in the calculation process, let's correct the approach: The correct approach involves finding the difference in operating income due to the change in sales volume. Given the actual operating income is $45,000, we need to find the expected operating income for the actual sales volume based on the budgeted unit contribution margin and fixed costs. The budgeted contribution margin per unit = (Total sales revenue - Total variable costs) / Budgeted units sold = ($270,000 - $180,000) / 30,000 units = $3 per unit. Expected operating income for actual sales volume = (Actual units sold x Budgeted contribution margin per unit) - Total fixed costs = (32,000 units x $3) - $24,000 = $96,000 - $24,000 = $72,000. The difference between the expected operating income for the actual sales volume and the actual operating income = $72,000 - $45,000 = $27,000. This indicates an error in the initial calculation and misunderstanding of the question's requirement for sales volume variance specifically, which focuses on the impact of the difference in units sold from the budgeted amount, not directly calculating from the given operating income. The correct calculation directly from the given data is not provided due to a mistake in interpreting the question's requirement. The correct answer should reflect the impact of selling more units than budgeted on operating income, but without the exact calculation provided in the options, the correct selection process was flawed.

A Company's Master Budget for October Is to Manufacture and Sell