A. The variance is favorable as the quantity actually sold (42,000) is greater than the budgeted quantity (40,000). See the correct answer for a complete explanation.

B. The sales quantity variance, which is the same thing as the sales volume variance, measures the impact of the difference in sales volume between the actual results and the static budget. The sales quantity/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 42,000. The "SQ," budgeted quantity, is 40,000. The "SP," budgeted price, is the budgeted contribution margin per unit. That is $2.50 per unit ($6 - $3.50). Thus the variance is (42,000 - 40,000) × $2.50, or $5,000. A positive variance for an income line or for the contribution margin line is a favorable variance, because it means the actual was higher than the budget.

C. The sales quantity variance, which is the same thing as the sales volume variance, measures the impact of the difference in sales volume between the actual results and the static budget. The sales quantity/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 42,000. The "SQ," budgeted quantity, is 40,000. The "SP," budgeted price, is the budgeted contribution margin per unit. That is $2.50 per unit ($6 - $3.50).

This answer results from using the actual contribution margin per unit instead of the budgeted contribution margin per unit.

D. The variance is favorable as the quantity actually sold (42,000) is greater than the budgeted quantity (40,000). See the correct answer for a complete explanation.