SPM case
Chapter 15
The Flexible Budget: Further Analysis of Productivity and Sales
Teaching Notes for Cases
Case 15-1 Dallas Consulting Group*
This case serves as a review of sales variances. Since all costs are fixed, it is unnecessary to do a variance analysis based on contribution. Instead, the analysis is better done based solely on revenues. The variances shown in Exhibit 1 are computed for the “levels” explained in the “Note on Managing Against Expectations.”
Students should recognize the following points:
1. Profit was $40,000 more than expected (Total Variance).
2. There was a total unfavorable Volume Variance of $42,000 due to the decline in the actual number of billed hours (from 15,000 down to 14,000).
3. There was a favorable Mix Variance of 72,000 because of the shift in the product mix resulting in a higher relative percentage of sales of the higher priced product (B) than expected (and a corresponding decrease in the relative percentage sales of A).
4. There was a favorable Price Variance of $10,000 due to the increase in the rate charged for product A (from $30 up to $35 per hour).
5. Product A:
1. Volume Variance is unfavorable due to the decline in the actual number of hours billed.
2. Mix Variance is unfavorable because of the decline in the number of hours billed for product A as a percentage of total sales (from 40 percent down to 14 percent).
3. Price Variance is favorable because of the increase in the rate charged for product A (from $30 up to $35 per hour).
6. Product B:
1. Volume Variance is unfavorable due to the decline in the actual number of hours billed.
2. Mix Variance is favorable because of the increase in the number of hours billed for product B as a percentage of total sales (from 60 percent up to 86 percent).
3. Product B has no Price Variance since the actual billed rate was equal to the expected rate.
7. The total market decline of 3,000 hours (from 115,000 hours down to 112,000
The Flexible Budget: Further Analysis of Productivity and Sales
Teaching Notes for Cases
Case 15-1 Dallas Consulting Group*
This case serves as a review of sales variances. Since all costs are fixed, it is unnecessary to do a variance analysis based on contribution. Instead, the analysis is better done based solely on revenues. The variances shown in Exhibit 1 are computed for the “levels” explained in the “Note on Managing Against Expectations.”
Students should recognize the following points:
1. Profit was $40,000 more than expected (Total Variance).
2. There was a total unfavorable Volume Variance of $42,000 due to the decline in the actual number of billed hours (from 15,000 down to 14,000).
3. There was a favorable Mix Variance of 72,000 because of the shift in the product mix resulting in a higher relative percentage of sales of the higher priced product (B) than expected (and a corresponding decrease in the relative percentage sales of A).
4. There was a favorable Price Variance of $10,000 due to the increase in the rate charged for product A (from $30 up to $35 per hour).
5. Product A:
1. Volume Variance is unfavorable due to the decline in the actual number of hours billed.
2. Mix Variance is unfavorable because of the decline in the number of hours billed for product A as a percentage of total sales (from 40 percent down to 14 percent).
3. Price Variance is favorable because of the increase in the rate charged for product A (from $30 up to $35 per hour).
6. Product B:
1. Volume Variance is unfavorable due to the decline in the actual number of hours billed.
2. Mix Variance is favorable because of the increase in the number of hours billed for product B as a percentage of total sales (from 60 percent up to 86 percent).
3. Product B has no Price Variance since the actual billed rate was equal to the expected rate.
7. The total market decline of 3,000 hours (from 115,000 hours down to 112,000