PRICING STRATEGY, SALES VARIANCES
Howerton, Inc., manufactures and sells three products: K, M, and P. In January, Howerton, Inc., budgeted sales of the following:
|
|
Budgeted Volume |
Budgeted Price |
|
Product K |
110,000 |
$50 |
|
Product M |
165,000 |
20 |
|
Product P |
20,000 |
20 |
At the end of the year, actual sales for Product K and Product M were $5,600,000 and $3,270,000, respectively. The actual price charged for each was equal to the budgeted price. Product P, however, had revenues of $600,000. While total revenue was higher than expected, the actual price of $10 represented a last minute revision from budget to increase consumer acceptance of the product.
Required:
1. Calculate the sales price and price volume variances for each of the three products based on the original budget.
2. Suppose that Product P is a new product just introduced during the year. What pricing strategy is Howerton, Inc., following for this product?