Exercise 1820 Pricing Strategy Sales Variances Eastman Inc m

Exercise 18.20
Pricing Strategy, Sales Variances

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?

Solution

1)

Product R

Sale Price Variance = (Actual Sale Price - Budgeted Sale Price)*Actual Sale Quantity

Sale Price Variance = (25-26)*(3075000/25)

Sale Price Variance = 123000 Unfavorable

Sales Volume Variance = (Actual Sale Volume - Budgeted Sale Volume)*Budgeted Sale Price

Sales Volume Variance = (3075000/25 - 120000)*26

Sales Volume Variance = 78000 Favorable

Product S

Sale Price Variance = (Actual Sale Price - Budgeted Sale Price)*Actual Sale Quantity

Sale Price Variance = (20-22)*(3254000/20)

Sale Price Variance = 325400 Unfavorable

Sales Volume Variance = (Actual Sale Volume - Budgeted Sale Volume)*Budgeted Sale Price

Sales Volume Variance = (3254000/20 - 150000)*22

Sales Volume Variance = 279400 Favorable

Product T

Sale Price Variance = (Actual Sale Price - Budgeted Sale Price)*Actual Sale Quantity

Sale Price Variance = (10-20)*(540000/10)

Sale Price Variance = 540000 Unfavorable

Sales Volume Variance = (Actual Sale Volume - Budgeted Sale Volume)*Budgeted Sale Price

Sales Volume Variance = (540000/10 - 20000)*20

Sales Volume Variance = 680000 Favorable

2. Suppose that Product T is a new product just introduced during the year. What pricing strategy is Eastman, Inc., following for this product?

Penetration Pricing strategy is Eastman, Inc., following for this product as it charging lowest price & It is aimed to capture market