Comparative Income Statements and Sales Performance Variances; Current to Prior Year Green Grow Inc. manufactures riding lawn mowers that it sells to the large discount stores such as Walmart, Lowe’s, and Home Depot. The mowers are marketed as a “value” product, with good quality at a very good price. The company’s two products are the Quality mower, which last year sold for $1,200 (the discounters retailed it for $1,500), and the Heavy Duty model, which Green Grow sold for $1,600 (and was retailed for $2,200). At the end of last year, the company had come under increased price competition from other manufacturers. The company management believes it must reduce its price in the current year on both products to keep its current market share with sales of 3,500 units. The unit variable costs for the Quality and Heavy Duty products are $800 and $950, respectively. Management does not believe it can reduce these variable costs for the coming year but will begin to study ways to do so for future years. In the meantime, the company management believes it can maintain its total market share by increasing its advertising expenses by $150,000 and cutting the price on both models by 10%. Fixed costs, including advertising, were $550,000 last year and are not expected to change, with the exception of the increase in advertising. Last year, the sales mix was 40% for Quality and 60% for Heavy Duty. In the current year, the sales mix is 50% for Quality and 50% for Heavy Duty
Required 1. Prepare a comparative contribution income statement for Green Grow Inc. for the current year that shows the volume and selling price variances for each product based on contribution margin. (Hint: Use Exhibit 16.15 as an example.) 2. Determine the sales mix variance and the sales quantity variance for each product, based on contribution margin. 3. Did the price change and increase in advertising have the expected results? Why or why not? 4. What methods should Green Grow adopt to become more competitive in the current and coming year?
