This case is about variance analysis. The purpose of this case is to allow you to break down several
different types of variance that might occur in a business, including:
�A margin variance caused by differences in price and volume
�A combination of volume, product mix, and margin variance.
�A materials mix variance
�A breakdown of variance effects on an income statement
Please note that simply reporting the numbers is not an adequate solution; you have to explain how these
different types of variance affect the whole firm. In addition,
�You need to compare how the different divisions performed.
�You need to clearly state how the firm performed as a whole
Campar Industries, Inc. Case Study
Variance analysis is an important component of financial and managerial accounting since it
involves investigating financial performance deviations from the standards in organizational
budgets definitions. Variances in businesses are of different types and arise from varied sources,
and variance analysis typically concerns isolating these varied causes of income and expenses
variation from the budgeted standards over a stipulated period of financial accounting. For
example, in this case study of Campar Industries, Inc. the variances are analyzed across its four
different divisions such as Alpha, Beta, Gamma and Delta as follows:
Campar Industries Case Study 2
Approach
This case study problem involves analysis of different types of variances whereby the Alpha
division problem involves the analysis of the gross margin variances; Beta division problem
involves the analysis of gross margin mix variance; Gamma division problem involves the
application of the mix variance concept to raw materials; and finally Delta division problem
involves a review of a variance analysis problem consisting of both the margin variance as well
as production cost variances.
Alpha division
The unfavorable volume variance is more than overcome by the favorable unit margin (which is
also commonly referred to as the selling price) variance. Hence, the analysis of this problem
clearly shows the importance to calculate the margin variance instead of revenue variances.
Beta division
Unit margin, budgeted$72 – $43 = $29
Unit margin, actual($1,658,250 / 22,000) – $43 = $75.38 – $43 = $32.38
Unit margin variance =∆ Unit margin * Actual volume
=($32.38 – $29) * 22,000 = $74,360 F
Sales volume variance =∆ Volume * Budgeted unit margin
=(22,000 – 24,000) * $29 = $58,000 U
Net gross margin =Actual gross margin – Budgeted gross margin
=22,000 * $32.38 – 24,000 * $29 = $16,360 F
Check: $74,360 F – $58,000 U = 16, 360 F
Campar Industries Case Study 3
Budgeted volume @Actual volume @Actual volume @Actual volume @
Budgeted mix @ Sales volume varianceActual mix @ Production mix marginActual mix @ Unit margin var.Actual mix @
Budgeted marginBudgeted marginBudgeted marginActual margin
Products
13,200@5123,072@512 2,850@5122,850@ $12.24
(-$38,400)$1,536 U (-$36,864)$2,664 U (-34,200) $684 F (-$34,884)
21,700@ $15.601,632@ $15.60 2,500@ $15.602,500@ $15.10
(-$26,520)$1,061 U (-$25,459)$13,541 F (-$39,000) $1,250 U (-37,750)
35,100@ $10.804,896@ $10.80 4,250@ $10.504,250@ $10.56
(-$55,080) $2,203 U (-52,877)$6,977 U (-$54,900) $1,020 U (-$44,880)
Total $4,800 U$3,900 F $1,586 U = $2,486 U Net
From the above analysis, it is evident that if Beta changed its program of marketing for the
purpose of producing actual results, the move was not a good one. This is mainly because
shifting towards a mix that is “richer” did not lead to generation of adequate additional margin to
overcome the sales volumes that were unfavorable as well as unit margin impacts.
Gamma division
Campar Industries Case Study 4
Mix variance:
(Standard Mix – Actual Quantity) * Standard Price = Mix Variance
Material X (6,000 – 5,500) * $1.69 = $ 845 F
Material Y (4,000 – 4,500) * $2.34 = $ 1,170 U
= $ 325 F
*Actual quantity used at budgeted proportion (60/40)
Price variance:
(Standard Price – Actual Price) * Actual Quantity = Price Variance
Material X ($1.69 – $1.69) * 5,500 = $0
Material Y ($2.34 – $2.53) * 4,500 = $855 U
$855 U
Usage variance:
(Standard quantity – Actual quantity) * Standard Price = Usage variance
(9,900 – 10,000) * $1.95 = $195 U
Net variance:
Mix variance + Price variance + Usage variance =
$325 U + $855 U + $195 = $1,375 U
Check:
Actual cost = $20,680
Standard cost = 9,900 lbs. * $1.95 = $19,305
Net variance = = $1,375 U
Delta division
Gross margin variance:
Budgeted unit margin, A = $300 – ($72 + $62.50 + $75) = $90.50
Budgeted unit margin, B = $185 – ($54 + $37.50 + $45) = $48.50
Actual unit margin, A = ($533,750 / 1,750) – $209.50 = $95.50
Actual unit margin, B = ($601,250 / 3,250) – $136.50 = $48.50
Sales volume variance: $0. This can be determined by inspection because both actual and
budgeted total volumes were 5,000 units.
Campar Industries Case Study 5
Mix variance
A: (1,750 – 1,900) * $90.50 = $13,575 U
B: (3,250 – 3,100) * $48.50 = $7,275 F
=$6,3000 U
Unit margin variance:
A: ($95.50 – $90.50) * 1,750 = $8,750 F
B: (by inspection)0
$8,750 F
Net margin variance = $6,300 U + $8,700 F = $2,450 F
Material variance:
Standad materials per unit, A: $72 / $1.80/lb. = 40 lbs.
Standard material per unit, B: $54 / $1.80/lb. = 30 lbs.
Usage variance:
[(1,800 * 40) + (3,300 * 30) – 180,000] * $1.80 = $16,200 U
Price variance:
[$1.80 – ($330,480 / 180,000] * 180,000 = $6,480 U
Net materials variances: = $22,680 U
Labor variance:
Standard labor per unit, A: $62.50 / $25/hr. = 2.5 hrs.
Standard labor per unit, B: $37.50 / 25/hr. = 1.5 hrs.
Efficiency variance:
[(1,800 * 2.5 + 3,300 * 1.5) – 9,450] * $25 = $0
Rate variance:
[$25 – ($233,880 / 9,450)] * 9,450 = $2,370 F
Net labor variance = $2,370 F
Overhead variances:
Spending Variance:
$94,000 + $0.80 (233,880) – $320,000 = $38,896 U
Volume variance:
$1.20 (233,880) – $281,104 = $448 U
Net overhead variance = $39,344 U
Sum of all variances (profit variance)
$2,450 F + $22,680 U + $2,370 F + $39,344 U =$57,204 U
Delta Division Statement of Budgeted and Actual Gross Margin
Campar Industries Case Study 6
Budget Actual
Revenues $1,143,500 $1,135,000
Cost of goods sold @
standard $821,200 $810,250
Gross margin @ standard $322,300 $324,750
Production cost variances:
Materials usage $16,200
Materials price $6,480
Labor rate $2,370
Overhead spending $38,896
Overhead volume $448
Total variances $59,654
Gross margin, actual $322,300 $265,096
There was an increase in the gross margin by $8,750 due to a $5 per unit higher margin of
Product A; however, shifting product mix towards lower margin Product B led to elimination of
$6,300 of this gain. The production cost variances are self explanatory from the tables provided
above with exception of the overhead volume variance which represents the amount of the
standard overhead cost per unit that was predetermined and undercharged products for overhead,
due to the fact that the overhead rate was determined on basis of a planned volume of 235,000
DLS, while the actual volume was relatively less at 233, 880 DLS.
Campar Industries Case Study 7
References
Chew, L., & Parkinson, A. (2013). Making Sense of Accounting for Business. Harlow: Pearson.
Nelson, M., Spiceland, J. D., Sepe, J. (2012). Intermediate Accounting, (7 th ed.). New York, NY:
McGraw-Hill Publishers Inc.
Walgenbach, P. H., Dittrich, N. E., & Hanson, E. I. (2013). Financial Accounting. New York,
NY: Harcourt Grace Javonovich, Inc.
