Western Outfitters projected sales of 75,000 units for the year 2015 at a unit sale price of $12.00. Actual sales in 2015: 72,000 units, at $14.00 per unit. Variable costs were budgeted at $4.00 per unit; actual variable cost was $4.75 per unit. Budgeted fixed costs totaled $375,000 while actual fixed costs amounted to $400,000. What is the sales volume variance for operating income?

Question

Quizplus · Accepted Answer

First, calculate the budgeted sales revenue: 
75,000 units x $12.00 per unit = $900,000

Then, calculate the actual sales revenue: 
72,000 units x $14.00 per unit = $1,008,000

The sales volume variance for operating income can be calculated by subtracting the budgeted operating income from the actual operating income.

Budgeted operating income: 
Budgeted sales revenue - (Variable costs per unit x Budgeted sales units) - Budgeted fixed costs

Actual operating income: 
Actual sales revenue - (Actual variable costs per unit x Actual sales units) - Actual fixed costs

Budgeted operating income: 
$900,000 - ($4.00 x 75,000) - $375,000 = $75,000

Actual operating income: 
$1,008,000 - ($4.75 x 72,000) - $400,000 = $24,000

Sales volume variance for operating income: 
Actual operating income - Budgeted operating income 
$24,000 - $75,000 = -$51,000

The answer is B, $24,000 unfavorable, because the actual operating income was lower than the budgeted operating income by $24,000.

Western Outfitters Projected Sales of 75,000 Units for the Year