A. The sales volume variance measures the impact of the difference in sales volume between the actual results and the static budget. The sales volume variance for a single product (or for a single product firm) can be calculated for each variable income and expense item as well as for the contribution margin. If a question does not specify which line to use, as this one does not, use the contribution margin line.

For the contribution margin line, it is calculated as follows: (Actual Sales Volume - Budgeted Sales Volume) × Budgeted Contribution per Unit, or (AQ - SQ) × SP. The "AQ," actual quantity, is 11,000. The "SQ," budgeted quantity, is 12,000. The "SP," budgeted price, is the budgeted contribution margin per unit. That is $10 per unit ($110,000 ÷ 11,000 or $120,000 ÷ 12,000). Thus the variance is (11,000 - 12,000) × $10, or ($10,000). A negative variance for an income line or for the contribution margin line is an unfavorable variance, because it means the actual was lower than the budget.

We can also calculate the variance using the amounts given in the variance report. The sales volume variance for the contribution margin is the flexible budget contribution margin minus the static budget contribution margin. Actual sales volume times budgeted contribution per unit is the flexible budget contribution margin, i.e. $110,000. Budgeted sales volume times budgeted contribution per unit is the static (master) budget contribution margin, i.e. $120,000. $110,000 - $120,000 equals ($10,000) unfavorable.

B. The sales volume variance measures the impact of the difference in sales volume between the actual results and the static budget. The sales volume variance for the contribution margin is the flexible budget contribution margin minus the static budget contribution margin. The sales volume variance is unfavorable as the flexible budget contribution margin is lower than the static (master) budget contribution margin. See the correct answer for a complete explanation.

C. The sales volume variance measures the impact of the difference in sales volume between the actual results and the static budget. The sales volume variance for the contribution margin is the flexible budget contribution margin minus the static budget contribution margin. The sales volume variance is unfavorable as the flexible budget contribution margin is lower than the static (master) budget contribution margin. See the correct answer for a complete explanation.

D. The sales volume variance measures the impact of the difference in sales volume between the actual results and the static budget. The sales volume variance for the contribution margin is the flexible budget contribution margin minus the static budget contribution margin. This answer is the flexible budget variance for revenue, which is not an answer to the question. See the correct answer for a complete explanation.