(Appendix 11A)Iraj Company Retails Two Grades of Persian Carpets: Grade

(Appendix 11A)Iraj Company retails two grades of Persian carpets: Grade X and Grade Y.The carpets are sold by rolls.The following is a summary of the company's activities for last year:

$\begin{array}{l}\begin{array}{lll}\\\text {Sales in rolls:}\\\text {Budget}\\\text {Actual}\\\text {Contribution margin per roll:}\\\text {Budget}\\\text {Actual}\\\text {Market volume in rolls:}\\\text {Forecast}\\\text {Actual}\\\text {Required:}\\\end{array}\begin{array}{ccc}Grade X&Grade Y &Total\\\\1,600 & 400 & 2,000 \\1,980 & 220 & 2,200 \\\\\$ 800 & \$ 2,000 & \\\$ 700 & \$ 2,500 &\\\\&&10,000\\&&13,750\end{array}\end{array}$

Required:

a) Assume the two grades of carpet are close substitutes. Calculate the sales volume variance for each grade of carpet and analyze each into a sales mix variance and a sales quantity variance.
b) Analyze the sum of the sales quantity variance into its two components: market volume variance and market share variance.
c) Comment on the appropriateness of the assumption of close substitution between the two grades of carpet. Comment also on the effect, if any, on the analysis in part a) above if this assumption is considered inappropriate.

Correct Answer:

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For the following,F = favourable and U =...

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