Milltown Company specializes in selling used cars. During the month, the dealership sold 30 cars at an average price of $15,800 each. The budget for the month was to sell 28 cars at an average price of $16,800. Compute the dealership’s sales price variance for the month. Multiple Choice <\/p>\n\n\n\n
a. $33,600 unfavorable. <\/p>\n\n\n\n
b. $30,000 favorable. <\/p>\n\n\n\n
c. $33,600 favorable. <\/p>\n\n\n\n
d. $30,000 unfavorable <\/p>\n\n\n\n
e. $10,800 favorable.<\/p>\n\n\n\n
The Correct Answer and Explanation is:<\/mark><\/strong><\/p>\n\n\n\n To compute Milltown Company’s sales price variance<\/strong>, we use the following formula:<\/p>\n\n\n\n Sales Price Variance = (Actual Selling Price \u2013 Budgeted Selling Price) \u00d7 Actual Units Sold<\/strong><\/p>\n<\/blockquote>\n\n\n\n Now plug the values into the formula: Sales Price Variance=(15,800\u221216,800)\u00d730\\text{Sales Price Variance} = (15,800 – 16,800) \\times 30Sales Price Variance=(15,800\u221216,800)\u00d730 Sales Price Variance=(\u22121,000)\u00d730=\u221230,000\\text{Sales Price Variance} = (-1,000) \\times 30 = -30,000Sales Price Variance=(\u22121,000)\u00d730=\u221230,000<\/p>\n\n\n\n Since the result is negative<\/strong>, this is an unfavorable variance<\/strong> of $30,000<\/strong>.<\/p>\n\n\n\n Sales price variance is a financial metric used by businesses to assess how changes in the actual selling price of goods or services, compared to the budgeted price, have impacted overall revenue. It plays a crucial role in performance evaluation and strategic decision-making.<\/p>\n\n\n\n In this scenario, Milltown Company budgeted for each car to sell at $16,800<\/strong>, but the actual average selling price was only $15,800<\/strong>. This means each car was sold for $1,000 less<\/strong> than expected. Despite selling 2 more cars than budgeted<\/strong> (30 actual vs. 28 budgeted), the focus of sales price variance is solely on the price difference applied to the actual quantity sold<\/strong>.<\/p>\n\n\n\n The formula captures how much revenue was lost or gained solely due to price differences, not volume. Multiplying the $1,000 shortfall per car by the 30 cars sold results in a $30,000 unfavorable variance<\/strong>, meaning the company earned $30,000 less than it would have if the cars had been sold at the budgeted price.<\/p>\n\n\n\n This unfavorable variance could signal several issues: increased competition forcing lower prices, a drop in consumer demand, or perhaps pricing errors. It’s a red flag for management, as pricing is a critical component of profitability. Even though the company sold more cars than planned (which might produce a favorable sales volume variance<\/strong>, a different metric), the lower price negatively impacted revenue.<\/p>\n\n\n\n Understanding and analyzing such variances allows businesses to pinpoint problem areas and adjust pricing strategies, marketing efforts, or cost controls to improve financial performance in future periods.<\/p>\n","protected":false},"excerpt":{"rendered":" Milltown Company specializes in selling used cars. During the month, the dealership sold 30 cars at an average price of $15,800 each. The budget for the month was to sell 28 cars at an average price of $16,800. Compute the dealership’s sales price variance for the month. Multiple Choice a. $33,600 unfavorable. b. $30,000 favorable. 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\n\n\n\nStep-by-step Calculation:<\/strong><\/h3>\n\n\n\n
\n
\n\n\n\nCorrect Answer: d. $30,000 unfavorable<\/strong><\/h3>\n\n\n\n
\n\n\n\nExplanation (300+ words):<\/strong><\/h3>\n\n\n\n