Question 1: Did Clear-View increase unit sales by cutting prices or by using some other strategy?
Question 2: Is Mr. Radeka correct in his conclusion that something is wrong with the company's performance evaluation process? If so, what do you suggest be done to improve the system?
Question 3: Prepare a flexible budget and recompute the budget variances.
Question 4: Explain what might have caused the fixed costs to be different from the amount budgeted.
Question 5: Assume that the company's material price variance was favorable and its material usage variance was unfavorable. Explain why Mr. Radeka may not be responsible for these variances.
Now, explain why he may have been responsible for the material usage variance.
Question 6: Assume the labor price variance is unfavorable. Was the labor usage variance favorable or unfavorable?
Question 7: Is the fixed manufacturing overhead cost volume variance favorable or unfavorable? Explain the effect of this variance on the cost of each set of sunglasses.
Number of units 230,000 250,000 20,000
Sales revenue $4,600,000 $5,037,500 $437,500 F
Variable manufacturing costs
Materials (759,000) (835,000) 76,000 U
Labor (391,000) (420,000) 29,000 U
Overhead (414,000) (442,500) 28,500 U
Variable general, selling,
and admin. Costs (552,000) (612,500) 60,500 U
Contribution margin 2,484,000 2,727,500 243,500 F
Fixed costs
Manufacturing overhead (1,570,000) (1,585,700) 15,700 U
General, sellings, and admin cost (575,000) (563,500) 11,500 F
Net income $ 339,000 $ 578,300 $239,300 F