CHAPTER 16

MANAGING PRODUCTIVITY
AND MARKETING
EFFECTIVENESS
MEMBERS: SALINAS, AREVALO, CAPUA, LERIO, UDANI
EXPECTED LEARNING OUTCOMES

AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO…

 Describe Productivity
 Compute and interpret partial operational and financial
productivity
 Compute and interpret total productivity
 Understand the components of sales variance to assess
marketing effectiveness
 Sales Price Variance
 Sales Volume Variance
 Sales Mix Variance
 Sales Quantity Variance
 Market Size Variance
 Market Share Variance
MANAGING PRODUCTIVITY

• Sustaining profitability and

maintaining or improving
market share requires effective
marketing activities.
• BENEFITS OF HIGHER
PRODUCTIVITY
• Competitive advantages
• Higher-thah-average
returns,earnings, and
• Attainment of Long-term Success
MEASURING PRODUCTIVITY

 Total Productivity – a PRODUCTIVITY MEASURES

productivity measure that includes
PARTIAL PRODUCTIVITY
all input measures used in
production. Partial Operational
Productivity
Ex. ( the number of tables
manufactured per peso of Partial Financial Productivity
manufacturing cost) – it is a total
productivity measure because the PRODUCTIVITY
denominator includes all TOTAL PRODUCTIVITY
manufacturing costs incurred to make
a table. ( FINANCIAL PRODUCTIVITY)
 PRODUCTIVITY MEASURES

  
Productivity is the ratio of output to input.

A measure of productivity can be either an

Operational or Financial Productivity.
PRODUCTIVITY MEASURES

  Partial Productivity relates one or part of the input factors to the output.
Basic Formula is :
# of units or value of output manufactured
# of units or cost of a single or part of the
input resources
Direct Materials Yield
WORKFORCE PRODUCTIVITY
Output per labor-hour
Output per person employed
Process (activity) Productivity
PARTIAL PRODUCTIVITY


  Partial Productivity measures the relationship between the output
and one or part of the required input resources used in producing
the output.

NOTES:
 The higher the ratio, is the better.
 The numerator is the number of units or value of the goods or services
produced.
 The denominator is the number or cost of a manufacturing factor such as
direct materials, direct labor-hours , or selected input resources.
 PARTIAL OPERATIONAL PRODUCTIVITY
VS.
PARTIAL FINANCIAL PRODUCTIVITY

A partial operational productivity

is the required physical amount of an
input resource to produce one unit
output, while a partial financial
productivity of an input resource is
the number of units or the value of
output manufactured for each peso
spent on the input resource.
Figure 16-2 presents the partial operational and partial financial productivity of Press
Tool Company in 20x4 and 20x5
 ADVANTAGES OF PARTIAL
PRODUCTIVITY MEASURES

 Allows managers to focus on the use

of a specific unit.
 Easily interpreted by all that is within
the firm and can be use in assessing
productivity of performance of
operating personnel
 In terms of operational control, the
standard performance are very short-
term.
 LIMITATIONS OF PARTIAL
PRODUCTIVITY ANALYSIS

1. It measures only the relationship between an input resource

and the output; it ignores any effect that changes in other
manufacturing factors have on productivity.
2. It ignores any effect that changes in other production factors
have on productivity.
3. It ignores the effects that changes in the firm’s operating
characteristics have on the productivity of the input resource.
4. An improved partial productivity does not imply that the firm or
division operates efficiently.
TOTAL PRODUCTIVITY


  TotalProductivity shows the relationship between
the output and the total cost of all input
resources used to produce the output.

 Total Productivity is a financial productivity

measure. It can be either the number of units or the
sale value of the output obtained.
As shown in the table above, total productivity in units and in sales pesos both
decreased in 20x5 which is not favorable.
 BENEFITS AND LIMITATIONS OF
TOTAL PRODUCTIVITY MEASURES

BENEFITS
It decreases the possibility of manipulating some of the manufacturing
factors to improve the productivity measures.
LIMITATIONS
1. May have difficulty in linking financial productivity measures to their day-
to-day operations. Also, deterioration in total productivity can result
from increased costs of resources.
2. Basis of assessing changes in productivity could vary over time.
3. Can ignore the effects of changes in demand, selling prices and special
purchasing and selling arrangements on productivity.
 MANAGING MARKETING
EFFECTIVENESS

No entity can gain success without

effective marketing activities that
will enable it to accomplish the
following:
a) Earn the projected operating income.
b) Attain the desired and budgeted
market share.
c) Adapt to market change.
FACTORS AFFECTING MARKETING
EFFECTIVENESS

CHANGES IN:
SELLING PRICES
SALES QUANTITY
PRODUCT MIX
MARKET SIZE
MARKET SHARE
 BUDGETED
ACTUAL SALES
SALES

SALES VARIANCE

SALES PRICE SALES VOLUME

VARIANCE VARIANCE

SALES MIX SALES QUANTITY

VARIANCE VARIANCE

MARKET SHARE MARKET SIZE

COMPONENTS OF SALES VARIANCE VARIANCE
VARIANCE
SUMMARY OF VARIANCE ANALYSIS
TO ASSESS MARKETING
EFFECTIVENESS

TOTAL SALES VARIANCE Pxx

TOTAL ACTUAL SALES xx
LESS: TOTAL BUDGETED SALES xx
(UNFAVORABLE)FAVORABLE Pxx
 SALES PRICE VARIANCE

Sales Price Variance is the difference between actual peso amount received from all
the units sold and the peso amount the firm would have received had the firm sold
these units at the budgeted selling price per unit.

𝑺𝑷𝑽 =( 𝑨𝒄𝒕𝒖𝒂𝒍 𝑺𝑷 𝒑𝒆𝒓 𝒖𝒏𝒊𝒕 − 𝑩𝒖𝒅𝒈𝒆𝒕𝒆𝒅 𝑺𝑷 𝒑𝒆𝒓 𝒖𝒏𝒊𝒕 ) 𝒙𝑨𝒄𝒕𝒖𝒂𝒍 ¿ 𝒐𝒇 𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅
 
 SALES VOLUME VARIANCE

Sales Volume Variance is the difference between budgeted contribution margin for
the actual total units sold(flexible contribution margin) and the budgeted
contribution margin

𝑺𝑽𝑽
  =( ¿ 𝒐𝒇 𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅 −¿𝒐𝒇 𝒖𝒏𝒊𝒕𝒔 𝒊𝒏 𝒕𝒉𝒆 𝒎𝒂𝒔𝒕𝒆𝒓 𝒃𝒖𝒅𝒈𝒆𝒕 ) 𝒙 𝑩𝒖𝒅𝒈𝒆𝒕𝒆𝒅 𝑪𝑴 𝒑𝒆𝒓 𝒖𝒏𝒊𝒕
SALES QUANTITY BUDGETED SALES
CONTRIBUTI VOLUME
FLAVOR ACTUAL BUDGET DIFFERENCE ON MARGIN VARIANCE

VANILLA 180000 250000 70000 U X P7.00 P(490000)

U
CHOCOLATE 270000 300000 30000 U X P9.00 (270000)U
STRAWBERR 330000 200000 130000 F X P11.00 1430000 F
Y
 SALES MIX VARIANCE

Sales Mix Variance of a product is the product of the difference between

the actual and budgeted sales mix , the actual total units of all the
products sold, and the product contribution margin per unit of the product.

= ( 𝑨𝒄𝒕𝒖𝒂𝒍𝑺𝑴% 𝒇𝒐𝒓𝒕𝒉𝒆𝒑𝒓𝒐𝒅𝒖𝒄𝒕−𝑩𝒖𝒅𝒈𝒆𝒕𝒆𝒅𝑺𝑴%𝒇𝒐𝒓𝒕𝒉𝒆𝒑𝒓𝒐𝒅𝒖𝒄𝒕 ) 𝒙𝑨𝒄𝒕𝒖𝒂𝒍𝒕𝒐𝒕𝒂𝒍𝒖𝒏𝒊𝒕𝒔 𝒐𝒇 𝒂𝒍𝒍𝒑𝒓𝒐𝒅𝒖𝒄𝒕𝒔𝒐𝒍𝒅𝒙𝑩𝒖𝒅𝒈𝒆𝒕𝒆𝒅𝒖

SALES MIX

BUDGET ACTUAL
FLAVOR QUANTITY MIX QUANTITY MIX
VANILLA 250000 0.3125 180000 0.18750
CHOCOLATE 300000 0.3750 270000 0.28125
STRAWBERRY 200000 0.2500 330000 0.34375
MANGO 50000 0.0625 180000 0.18750
TOTAL 800000 1.0000 960000 1.00000

SALES MIX
VARIANCE
TOTAL SALES QUANTITY TOTAL BUDGETED SALES MIX
ACTUAL CONTRIBUTIO VARIANCE
FLAVOR ACTUAL BUDGE DIFFERENC QUANTITY N
T E MARGIN/UNIT

VANILLA 0.18750 0.3125 0.12500 X 960000 X P7.00 P(840000)

U
CHOCOLATE 0.28125 0.3750 0.09375 X 960000 X P9.00 (810000) U
STRAWBERR 0.34375 0.2500 0.09375 X 960000 X P11.00 990000 F
Y
 SALES QUANTITY VARIANCE

Sales Quantity Variance measures the effect on the contribution margin and the
operating income due to the deviation of the actual total sales units from the budgeted
total units.
SQV=(Actual total units of all products sold- Budgeted total units of all
products) x Budgeted Sales Mix % of the product x Budgeted CM per unit
TOTAL SALES QUANTITY BUDGETED BUDGETED SALES
SALES MIX CONTRIBUTION QUANTITY
FLAVOR ACTUAL BUDGET DIFFERENCE MARGIN/UNIT VARIANCE

VANILLA 960000 800000 160000 X 0.3125 X P7.00 P 350000 F

CHOCOLATE 960000 800000 160000 X 0.3750 X P9.00 540000 F
STRAWBERRY 960000 800000 160000 X 0.2500 X P11.00 440000 F
MANGO 960000 800000 160000 X 0.0625 X P15.00 150000 F
TOTAL 1.0000 P 1480000
RECAP
SALES MIX SALES QUANTITY SALES VOLUME
FLAVOR VARIANCE VARIANCE VARIANCE

VANILLA P(840000) U + P 350000 F = P(490000)U

CHOCOLATE (810000) U + 540000 F = (270000)U

STRAWBERRY 990000 F + 440000 F = 1430000 F

MANGO 1800000 F + 150000 F = 1950000 F

TOTAL P 1140000 F + P 1480000 F = P 2620000 F

MARKET SIZE VARIANCE

Market Size Variance measures the effect of changes in the total

market-size on the firm’s total contribution margin and operating income.

MSV=(Actual total units of the market- Budgeted total units of

the market) x Budgeted Market Share x Weighted-average
budgeted CM per unit
MARKET SHARE VARIANCE

Market Share Variance compares the firm’s actual market share to its budgeted
market share and measures the effect of change in the firm’s market share on its
contribution margin and operating income.

MSV=(Actual Market Share- Budgeted Market Share)x

Actual total units of the industry x Weighted-average
budgeted CM per unit
 ILLUSTRATIVE PROBLEM 16.2 : MARKET SIZE, MARKET
SIZE AND SALES VOLUME VARIANCES

MBR Company produces and sells gold-plated souvenir mugs. It expects to sell 1600 units in
20x4 for P45 each to earn a P25 contribution margin per unit. The president expects the total
market to be 32000 units for the year.

In 20x4, the University of the West won the national basketball championship. MBR sold
3000 at P75 per unit with P40 in variable costs per unit. Total market was 100000 units.

REQUIRED:
1. Market Share Variance
2. Market Size Variance
3. Sales Volume Variance
1.) MARKET SHARE

ACTUAL: 3000/100000 = 3%
BUDGET: 1600/ 32000 = 5%
MARKET SHARE VARIANCE
REQUIRED:
MSV=(Actual Market Share- Budgeted Market Share)x
Actual total units of the industry x Weighted-average
1.Market Share
budgeted CM per unit Variance
Market Share Variance = (3%-5%)(100000)(25) 2.Market Size
= P(50000) Unfavorable
Variance
2.) MARKET SIZE 3.Sales Volume
VARIANCE
MSV=(Actual total units of the market- Budgeted total
Variance
units of the market) x Budgeted Market Share x Weighted-
average budgeted CM per unit

Market Size Variance = (100000-32000)(0.05)(P25)

=P 85000 Favorable
3.) SALES VOLUME VARIANCE

Sales volume variance = (3000-1600)(P25)

= P 35000 Favorable REQUIRED:
RECONCILIATION: 1.Market Share
Variance
MARKET SHARE
P (50000) UNFAVORABLE
2.Market Size
VARIANCE Variance
MARKET SIZE 3.Sales Volume
85000 FAVORABLE
VARIANCE
Variance
SALES VOLUME
35000 FAVORABLE
VARIANCE