Western Outfitters projected sales of 75,000 units for the year 2015 at a unit sale price of $12.00.Actual sales in 2015 were 72,000 units,at $14.00 per unit.Variable costs were budgeted at $4.00 per unit and the 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

The formula for sales volume variance for operating income is as follows:

(Sales units budgeted - Sales units actual) x (Sales price - Variable cost per unit) - (Budgeted fixed costs - Actual fixed costs)

Plugging in the given values,

(75,000 - 72,000) x ($12.00 - $4.75) - ($375,000 - $400,000)

(3,000) x ($7.25) - (-$25,000)

$21,750 + $25,000 = $46,750

Since the actual fixed costs are higher than the budgeted fixed costs, we subtract the difference from the variance. Therefore, the sales volume variance for operating income is $46,750 - $25,000 = $21,750 unfavorable.

The only option that presents an unfavorable variance is B.

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