The Tornado Vacuum Cleaner Company produces and sells three different types of upright vacuum cleaners:
(1) The F1,
(2) The F3, and
(3) The F5.
Each vacuum cleaner shares certain basic features such as a 15-inch cleaning width, edge groomers, headlight, and 31-foot power cord. However, the vacuums differ in the power offered (the F5 has a 12-amp motor and dual agitators), versatility (the F5 comes with five cleaning tools, whereas the F3 comes with three cleaning tools and the F1 has only one cleaning tool), and ease of use (both the F3 and the F5 are manufactured without belt drives€”thus, customers do not need to purchase or install a replacement belt as they ultimately would have to for the F1).
Management of Tornado has provided you with the following data regarding their budget for their most recent year:
Vacuum Cleaner
F1 F2 F3
Selling price per unit $ 130 $ 200 $ 400
Variable cost per unit $ 75 $ 110 $ 240
Quantity sold 25,000 15,000 10,000

In addition, management budgets annual fixed cost of $ 3,860,000.
Actual results for the most recent year were as follows:

Required:
a. Determine Tornado€™s sales volume variance and flexible budget variance for the most recent year.
b. Decompose Tornado€™s sales volume variance into a sales mix variance and a sales quantity variance.
c. Why did Tornado€™s profit decrease even though the total number of units sold, the unit sales prices, the unit variable costs, and fixed costs were all exactly in line withexpectations?

Transcribed Image Text:

vaccum clearner F3 F1 F2 I Total 50,000 S 4,500,000 S 2,000,000 4,000,000 S 10,500,000 S 2,250,000 S 1,100,000 2,400,000 $ 5,750,000 Contribution Margin S 2,250,000 S 900,000 1,600,000 S 4,750,000 $ 3,860,000 S 890,000 30,000 10,000 10,000 Quantity sold Revenue Variable cost Fixed cost profit