Price Volume Mix Calculation Analysis by ans54758

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```									              Sales-Variance Analysis

Chapter 14

2009 Foster School of Business   Cost Accounting   L.DuCharme   1
Calculation of sales variances

2009 Foster School of Business   Cost Accounting   L.DuCharme   2
Overview of chapter

• Calculation of sales variances
• Interpretation of sales variances

2009 Foster School of Business   Cost Accounting   L.DuCharme   3
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          Actual Mkt. size        Actual Mkt. size      Actual Mkt. size      Budget Mkt. size
x Actual Mkt. share       x Actual Mkt. share     x Actual Mkt. share   x Budget Mkt. share   x Budget Mkt. share
x Actual sales mix        x Actual sales mix      x Budget sales mix    x Budget sales mix    x Budget sales mix
x Actual CM /unit         x Budget CM /unit       x Budget CM /unit     x Budget CM /unit     x Budget CM /unit
2009 Foster School of Business   Cost Accounting   L.DuCharme                                        4
Things to note:
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.
2009 Foster School of Business   Cost Accounting   L.DuCharme   5
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

2009 Foster School of Business   Cost Accounting   L.DuCharme   6
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
2009 Foster School of Business   Cost Accounting   L.DuCharme                7
Sales-Volume
Variance Components
The following are the actual results for
English Languages for the year 2003.
Product                        Grammar                    Translation Composition
Selling \$/unit                        \$255                          \$85    \$185
Variable cost                            180                         45     95
Cont. margin
\$ 75                         \$40    \$ 90
per unit
2009 Foster School of Business   Cost Accounting   L.DuCharme                8
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
2009 Foster School of Business   Cost Accounting   L.DuCharme                9
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

2009 Foster School of Business   Cost Accounting   L.DuCharme              10
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

2009 Foster School of Business   Cost Accounting   L.DuCharme             11
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

2009 Foster School of Business   Cost Accounting   L.DuCharme             12
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

2009 Foster School of Business   Cost Accounting   L.DuCharme        13
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

2009 Foster School of Business   Cost Accounting   L.DuCharme                   14
Sales-Mix Variance

Sales-mix variance
(Actual sales-mix percentage
×        – Budgeted sales-mix percentage)
×         Budgeted contribution margin per unit

2009 Foster School of Business   Cost Accounting   L.DuCharme   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

2009 Foster School of Business   Cost Accounting   L.DuCharme         16
Sales-Quantity Variance

Sales-quantity variance
×        Budgeted sales-mix percentage
×        Budgeted contribution margin per unit

2009 Foster School of Business   Cost Accounting   L.DuCharme   17
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
2009 Foster School of Business   Cost Accounting   L.DuCharme           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.
2009 Foster School of Business   Cost Accounting   L.DuCharme   19
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
2009 Foster School of Business    Cost Accounting   L.DuCharme   20
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
2009 Foster School of Business   Cost Accounting   L.DuCharme   21
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
2009 Foster School of Business   Cost Accounting   L.DuCharme   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
2009 Foster School of Business   Cost Accounting   L.DuCharme   23
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
2009 Foster School of Business   Cost Accounting   L.DuCharme   24
Summary of Variances

Static-Budget Variance
Level 1
13,060 U

Flexible-Budget                          Sales-Volume
Level 2                     Variance                               Variance
\$17,370 F                              \$30,430 U

2009 Foster School of Business   Cost Accounting   L.DuCharme              25
Summary of Variances

Sales-Volume Variance
Level 2
\$30,430 U

Sales-Mix                       Sales-Quantity
Level 3                            Variance                          Variance
\$3,870 U                          \$26,560 U

2009 Foster School of Business    Cost Accounting   L.DuCharme               26
Summary of Variances

Sales-Quantity Variance
Level 3
\$26,560 U

Market-Share                          Market-Size
Level 4                      Variance                              Variance
\$74,700 U                             \$48,140 F

2009 Foster School of Business   Cost Accounting   L.DuCharme             27
Another Example
BOZOtronics
(on class webpage)
****************
End of Chapter 14

2009 Foster School of Business   Cost Accounting   L.DuCharme   28

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