Advanced: Reconciliation with sales mix, quantity operational and planning variances. DE is a distributor of three models of tablet PCs (Premium, Deluxe and Superfast) to retailers.

The details of the sales volume budget, standard selling prices and standard variable costs for each model for July were as follows:

At the end of July the senior management of the company decided that the impact of the failure of a major competitor had been underestimated and produced a revised sales volume budget as follows:

Required:

(a) Prepare a statement that reconciles the original budgeted contribution with the actual contribution for July, including planning and operational variances. Your statement should show the variances in as much detail as possible for each individual model, and in total. (13 marks)

(b) Explain why separating the sales volume variance into a sales mix and a sales quantity variance will provide useful information for the company’s sales manager. You should use the variances calculated in

(a) to illustrate your answer.
(6 marks)
(C) Explain why separating variances into their planning and operational components provides better information for planning and control purposes. (6 marks)
CIMA Performance Operations

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Sales volume budget Premium Deluxe Superfast 7000 units 5000 units 8000 units Premium Deluxe $ per unit $ per unit Superfast $ per unit Standard selling price 400 450 500 Standard variable cost 300 320 350