CN14HO

Sales-Variance Analysis
Chapter 14
2009 Foster School of Business
Cost
Calculation of sales variances
Cost
Overview of chapter
Calculation of sales variances
Interpretation of sales variances
Cost
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
Cost
Budget Mkt. size

x Budget Mkt. share
x Budget sales mix
x Budget CM /unit
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.
Cost
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
Cost
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

Cost
Sales-Volume
Variance Components
The following are the actual results for
English Languages for the year 2003.
Product
Grammar
Selling $/unit
$255
$85
$185
Variable cost
180
45
95
Cont. margin
per unit
$ 75
$40
$ 90
Cost
Sales-Volume
Variance Components--actual
Product
Grammar
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

Cost
Static-Budget Variance
Product
Grammar
Translation
Composition
Total
Actual
results
$216,000
39,600
56,700
$312,300
StaticStaticbudget
budget
amount
variance
$222,950 $ 6,950 U
36,260
3,340 F
66,150
9,450 U
$325,360 $13,060 U
Cost
10
Flexible-Budget Variance
(actual results budget)
Actual
contribution
Product
margin/unit
Grammar
$75
Translation
$40
Composition
$90
Unit
volume
2,880
990
630
Cost
Actual
results
$216,000
$ 39,600
$ 56,700
11
(Flexible budget)
Budgeted
contribution
Product
margin/unit
Grammar
$70
Translation
$37
Composition
$90
Actual
unit
volume
2,880
990
630
Cost
Flexible
budget
$201,600
$ 36,630
$ 56,700
12
FlexibleActual
budget
Product
results
amount
Grammar
$216,000
$201,600
Translation $39,600
$ 36,630
Composition $56,700
$ 56,700
Total flexible-budget variance
Cost
Flexiblebudget
variance
$14,400 F
$ 2,970 F
0
$17,370 F
13
Sales-Volume Variance
Product
Actual Budget
Grammar
(2,880 3,185)
Translation
(990 980)
Composition (630 735)
Total sales-volume variance
Budgeted
contribution
margin
$70 = $21,350 U
$37 =
370 F
$90 =
9,450 U
$30,430 U
Cost
14
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
Cost
15
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
Cost
16
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
Cost
17
Grammar:
(4,500 4,900) 0.65 $70
Translation:
(4,500 4,900) 0.20 $37
Composition:
(4,500 4,900) 0.15 $90
Total sales-quantity variance
= $18,200 U
= $ 2,960 U
= $ 5,400 U
= $26,560 U
Cost
18
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.
Cost
19

What is Englishs 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
Cost
20

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

Cost
21

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
28,125 0.20 $66.40 = $373,500
$373,500 $298,800 = $74,700 U
Cost
22
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

Cost
23
Market-Size Variance Example

Another way: calculate budgets
Actual Market Size Budgeted Market Share

28,125 0.20 $66.40 = $373,500
Static Budget: Budgeted Market Size
Budgeted Market Share
24,500 0.20 $66.40 = $325,360
$373,500 $325,360 = $48,140 F
Cost
24
Summary of Variances
Level 1
Level 2
Static-Budget Variance
13,060 U
Flexible-Budget
Variance
$17,370 F
Sales-Volume
Variance
$30,430 U
Cost
25
Level 2
Level 3
Sales-Volume Variance
$30,430 U
Sales-Mix
Variance
$3,870 U
Sales-Quantity
Variance
$26,560 U
Cost
26
Level 3
Level 4
$26,560 U
Market-Share
Variance
$74,700 U
Market-Size
Variance
$48,140 F
Cost
27
Another Example
BOZOtronics
(on class webpage)
****************
End of Chapter 14
Cost
28

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Sales-Variance Analysis

2009 Foster School of Business

Calculation of sales variances

2009 Foster School of Business

2009 Foster School of Business

Overview of Sales variances

Actual Mkt. size

Actual Mkt. size

Actual Mkt. size

2009 Foster School of Business

Actual Mkt. size

Budget Mkt. size

Total budgeted contribution margin = $325,360

2009 Foster School of Business

Total actual contribution margin = $312,300

2009 Foster School of Business

2009 Foster School of Business

2009 Foster School of Business

2009 Foster School of Business

Actual units of all products sold

(Actual sales-mix percentage

2009 Foster School of Business

4,500(0.64 0.65) $70 = $3,150 U

Translation: 4,500(0.22 0.20) $37 = $3,330 F

2009 Foster School of Business

(Actual units of all products sold

2009 Foster School of Business

Market-Share Variance Example

Market-Share Variance Example

Market-Share Variance Example

Actual market size in units

(Actual market share

28,125(0.16 0.20) $66.40 = $74,700 U

Market-Share Variance Example

Actual Market Size Actual Market Share

Market-Size Variance Example

(Actual market size in units

Budgeted contribution margin per

(28,125 24,500) 0.20 $66.40 = $48,140 F

Market-Size Variance Example

Actual Market Size Budgeted Market Share

2009 Foster School of Business

2009 Foster School of Business

2009 Foster School of Business

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