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Did Clear-View increase unit sales by cutting prices?

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a. Did Clear-View increase unit sales by cutting prices or by using some other strategy?
b. Is Mr. Radeka correct in his conclusion that something is wrong with the company's performance
evaluation process? If so, what do you suggest be done to improve the system?
c. Prepare a flexible budget and recompute the budget variances.
d. Explain what might have caused the fixed costs to be different from the amount budgeted.
e. Assume that the company's material price variance was favorable and its material usage
variance was unfavorable. Explain why Mr. Radeka may not be responsible for these variances.
Now, explain why he may have been responsible for the material usage variance.
f. Assume the labor price variance is unfavorable. Was the labor usage variance favorable or
unfavorable?
g. Is the fixed manufacturing overhead cost volume variance favorable or unfavorable? Explain
the effect of this variance on the cost of each set of sunglasses.

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Solution Summary

I created a flexible budget for you in Excel (click in cells to see computations) and answered your questions in a sentence or two. This is now a template for other similar problems.

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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