1. Madagascar HVAC Inc. distributes residential and industrial air conditioners to specialty shops that sell a variety of home heating and cooling products.

Faizan Indra, the controller of Madagascar is reassessing its sales focus. Between 2015 and 2019, there was an increase in demand for industrial air conditioners as a large industrial park in the area offered more building lots for small to medium sized businesses that required air conditioning units. The building project was completed at the end of 2019.

The following sales and costing data are available for 2020:

Residential air conditioners. Industrial air conditioners

Actual units sold

8,200 32,800

Budgeted sales

6,000 34,000

Actual selling price

$850 $1,200

Budgeted selling price

$830 $1,150

Budget cont. margin /unit

$330 $450

Actual cont. margin/unit

$324 $462

Madagascar subscribes to Market Data Forecast (MDF) which provides market forecasts for all air conditioner sales within Madagascar's sales region. At the beginning of 2020 the forecasted sales of all air conditioners within Madagascar's sales area was 500,000 units. Madagascar's planned market share of this amount was 8%. At the end of 2020 MDF reported actual sales in this area of 550,000 air conditioners.

MDF's report stated that demand for air conditioners spiked in the summer of 2020 and is forecast to continue to be at these levels in 2021. The industry forecasts this trend will continue as more organizations allow employees to work from home even after COVID restrictions are lifted.

Required:

a.Calculate the following:

i.Total sales volume variance for the contribution margin. (2 marks)

ii.Total sales-quantity variance for the contribution margin. (3 marks)

iii.Total sales-mix variance for the contribution margin. (3 marks)

b.Calculate the market size and the market share variances. (4 marks)

c.Discuss the profitability of Madagascar HVAC Inc. in 2020. Your discussion should include the following. This is a qualitative question requiring the use of pertinent data from your quantitative analysis in parts (a) and (b) in your answer. (5 marks):

i.Overall profitability. What are the major changes from budget and what caused these changes?

ii.How do the sales mix and sales quantity variances further explain the sales volume variance.

iii.How do the market size and market share variances further explain the sales quantity variance.

iv.Provide the owner with one recommendation relating to 2021 sales. Consider where the company should focus their sales and/or their market research and why.