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:
(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.
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 units of all products sold
                 (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
                 (Actual units of all products sold
        =        – Budgeted units of all products sold)
        ×        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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