Refrigerator Kingdom Corporation

Refrigerator Kingdom Corporation

Computing Sales Price Variance

When analyzing a variance, whether it be total sales, sales price or sales volume the purpose of the practice is to gauge the differences between the anticipated outcomes and the actual outcomes of a production process.  The activity can provide management with the necessary data to contain, regulate costs and enhance operational effectiveness.

When reviewing the expected/budgeted and the actuals between sales of the Cube Fridge and the Tall Fridge were favorable. The total sales variance was showing a revenue of $83,250.00. To calculate this revenue, we had to look at the individual budgeted vs. actuals of the tall and cube fridge.  Our findings are calculated below. The first set of calculations are based on the budgeted amount.

Budgeted:

The cube fridge showed a favorable sales price variance of $36,000.00, however, the tall fridge was highly unfavorable at a negative of $222,750.00. This is based on the sales price difference from the actuals price.  The Tall Fridge was sold for a total of $115.50 per unit as opposed to $120.00, showing a total loss of 5.00 per unit. The Cube fridge was sold for $93.00, as opposed to the budgeted $90.00 for an increase of $3.00 per unit.

When we look at the sales volume that was sold versus the budgeted amount, we show a highly favorable variance in the Tall Fridge for a revenue of $519,750.00. The Cube fridge did not sell as many units as expected and we saw a deficit of $279,000.00. Together with the loss and surplus included, we show a favorable revenue of $240,750.00. Since the business is multiple styles of the fridge, the business may have an inaccurate expected product combination.

Potential Impact on HR Planning

As an HR professional who aspires to fund employee recognition programs, we believe this effort would allow the organization to give back to the employees.  By putting a budget in place of $80,000+, this would allow for various small to mid-sized programs to develop.  However, if we were going to add salaries to this amount, we would need more revenue to cover the costs. To achieve this, we would revert back to the material costs, to make the cube fridge more profitable and at a minimum break even in costs.

Options to Fund HR Initiatives

Since sales for the cube fridge were lower than the company expected, Refrigerator Kingdom Corporation should make a corrective action plan to increase sales for the future.  The business may also consider looking into different marketing strategies and consider price cuts for the cube fridge.  This may generate increased revenue and meet the budget goals.  Looking at Refrigerator Kingdom budget and the actual costs, the business should contemplate on changing strategies or objectives before expanding.  As for the Tall Fridge, the company may be able to increase the price of the unit in order to generate more revenue.  These strategies can generate more revenue to support the funding of employee recognition programs and possibly add salaries.

References

Shim, J.K., & Siegel, J. G. (2012).  Budgeting basics and beyond (4th ed.). Hoboken, NJ: John Wiley & Sons.

Variance analysis. (2017, August 30). Retrieved February 05, 2018, from http://www.accountingtools.com/articles/what-is-variance-analysis.html

 

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