# CN14HO

Published on February 24, 2008

Author: Cubemiddle

Source: authorstream.com

Sales-Variance Analysis:  Sales-Variance Analysis Chapter 14 Slide2:  Calculation of sales variances Overview of “Sales” variances:  Overview of “Sales” variances Actual Flexible Static Budget Budget |----- Flex. V.-----|-------------- Sales-volume V.---------------| |--- Sales-Mix V.---|----------- Sales-Quant.V.------------| |-- Mkt.-share V. --|-- Mkt.-size V.--| Actual Mkt. size x Actual Mkt. share x Actual sales mix x Actual CM /unit Actual Mkt. size x Actual Mkt. share x Actual sales mix x Budget CM /unit Actual Mkt. size x Actual Mkt. share x Budget sales mix x Budget CM /unit Actual Mkt. size x Budget Mkt. share x Budget sales mix x Budget CM /unit Budget Mkt. size x Budget Mkt. share x Budget sales mix x Budget CM /unit Things to note::  Things to note: (1) Total number of units of all products sold = market size * market share (2) Number of each product sold = market size * market share * sales mix (3) Average CM / unit = sales mix * CM / unit (4) “Revenue” variances can be calculated by substituting sales price for CM in all of the equations on the prior slide. Sales-Volume Variance Components:  Sales-Volume Variance Components The following information relates to English Languages Institute budget for the year 2003. Product Grammar Trans. Comp. Selling price per unit \$259 \$87 \$185 Variable cost 189 50 95 Contribution margin per unit \$ 70 \$37 \$ 90 Sales-Volume Variance Components-budget:  Sales-Volume Variance Components-budget Product Grammar Translation Composition Cont. margin \$70 \$37 \$90 × Units 3,185 980 735 = Total \$222,950 \$36,260 \$66,150 Sales mix 65% 20% 15% Total budgeted contribution margin = \$325,360 Sales-Volume Variance Components:  Sales-Volume Variance Components Product Grammar Translation Composition Selling \$/unit \$255 \$85 \$185 Variable cost 180 45 95 Cont. margin per unit \$ 75 \$40 \$ 90 The following are the actual results for English Languages for the year 2003. Sales-Volume Variance Components--actual:  Sales-Volume Variance Components--actual Product Grammar Translation Composition Cont. margin \$75 \$40 \$90 × Units 2,880 990 630 = Total \$216,000 \$39,600 \$56,700 Sales mix 64% 22% 14% Total actual contribution margin = \$312,300 Static-Budget Variance:  Static-Budget Variance Static- Static- Actual budget budget Product results amount variance Grammar \$216,000 \$222,950 \$ 6,950 U Translation 39,600 36,260 3,340 F Composition 56,700 66,150 9,450 U Total \$312,300 \$325,360 \$13,060 U Flexible-Budget Variance (actual results “budget”):  Flexible-Budget Variance (actual results “budget”) Actual contribution Unit Actual Product margin/unit volume results Grammar \$75 2,880 \$216,000 Translation \$40 990 \$ 39,600 Composition \$90 630 \$ 56,700 Flexible-Budget Variance (Flexible budget):  Flexible-Budget Variance (Flexible budget) Budgeted Actual contribution unit Flexible Product margin/unit volume budget Grammar \$70 2,880 \$201,600 Translation \$37 990 \$ 36,630 Composition \$90 630 \$ 56,700 Flexible-Budget Variance:  Flexible-Budget Variance Flexible- Flexible- Actual budget budget Product results amount variance Grammar \$216,000 \$201,600 \$14,400 F Translation \$39,600 \$ 36,630 \$ 2,970 F Composition \$56,700 \$ 56,700 0 Total flexible-budget variance \$17,370 F Sales-Volume Variance:  Sales-Volume Variance Budgeted contribution Product Actual Budget margin Grammar (2,880 – 3,185) × \$70 = \$21,350 U Translation (990 – 980) × \$37 = 370 F Composition (630 – 735) × \$90 = 9,450 U Total sales-volume variance \$30,430 U Sales-Mix Variance:  Sales-Mix Variance Sales-mix variance Actual units of all products sold Actual sales-mix percentage – Budgeted sales-mix percentage Budgeted contribution margin per unit = × × Sales-Mix Variance:  Sales-Mix Variance Grammar: 4,500(0.64 – 0.65) × \$70 = \$3,150 U Translation: 4,500(0.22 – 0.20) × \$37 = \$3,330 F Composition: 4,500(0.14 – 0.15) × \$90 = \$4,050 U Total sales-mix variance = \$3,870 U Sales-Quantity Variance:  Sales-Quantity Variance Sales-quantity variance Actual units of all products sold – Budgeted units of all products sold Budgeted sales-mix percentage Budgeted contribution margin per unit = × × Sales-Quantity Variance:  Sales-Quantity Variance Grammar: (4,500 – 4,900) × 0.65 × \$70 = \$18,200 U Translation: (4,500 – 4,900) × 0.20 × \$37 = \$ 2,960 U Composition: (4,500 – 4,900) × 0.15 × \$90 = \$ 5,400 U Total sales-quantity variance = \$26,560 U Market-Share Variance Example:  Market-Share Variance Example Assume that English Languages Institute derives its total unit sales budget for 2003 from a management estimate of a 20% market share and a total industry sales forecast by Desert Services of 24,500 units in the region. In 2003, Desert Services reported actual industry sales of 28,125 units. Market-Share Variance Example:  Market-Share Variance Example What is English’s actual market share? 4,500 ÷ 28,125 = 0.16 Budgeted total contribution margin is \$325,360. Budgeted number of units is 4,900. What is the budgeted average contribution margin per unit? \$325,360 ÷ 4,900 = \$66.40 Market-Share Variance Example:  Market-Share Variance Example What is the market-share variance? Actual market size in units Actual market share – Budgeted market share Budgeted contribution margin per composite unit for budgeted mix = × × 28,125(0.16 – 0.20) × \$66.40 = \$74,700 U Market-Share Variance Example Another way: calculate budgets:  Market-Share Variance Example Another way: calculate budgets Actual Market Size × Actual Market Share × Budgeted Average Contribution Margin Per Unit 28,125 × 0.16 × \$66.40 = \$298,800 Actual Market Size × Budgeted Market Share × Budgeted Average Contribution Margin Per Unit 28,125 × 0.20 × \$66.40 = \$373,500 \$373,500 – \$298,800 = \$74,700 U Market-Size Variance Example:  Market-Size Variance Example Market-size variance Actual market size in units – Budgeted market size in units Budgeted market share Budgeted contribution margin per composite unit for budgeted mix = × × (28,125 – 24,500) × 0.20 × \$66.40 = \$48,140 F Market-Size Variance Example Another way: calculate budgets:  Market-Size Variance Example Another way: calculate budgets Actual Market Size × Budgeted Market Share × Budgeted Average Contribution Margin Per Unit 28,125 × 0.20 × \$66.40 = \$373,500 Static Budget: Budgeted Market Size × Budgeted Market Share × Budgeted Average Contribution Margin Per Unit 24,500 × 0.20 × \$66.40 = \$325,360 \$373,500 – \$325,360 = \$48,140 F Summary of Variances:  Summary of Variances Static-Budget Variance 13,060 U Level 1 Level 2 Flexible-Budget Variance \$17,370 F Sales-Volume Variance \$30,430 U Summary of Variances:  Summary of Variances Sales-Volume Variance \$30,430 U Level 2 Level 3 Sales-Mix Variance \$3,870 U Sales-Quantity Variance \$26,560 U Summary of Variances:  Summary of Variances Sales-Quantity Variance \$26,560 U Level 3 Level 4 Market-Share Variance \$74,700 U Market-Size Variance \$48,140 F In-class example BOZOtronics **************** End of Chapter 14:  In-class example BOZOtronics **************** End of Chapter 14

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