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Chapter 16 Revenues, Sales Variances, and Customer Profitability Analysis

Chapter 16 Revenues, Sales Variances, and Customer Profitability Analysis. Revenue Allocation. Revenue allocation occurs when revenues, related but not traceable to individual products (services or customers), are assigned to individual products

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Chapter 16 Revenues, Sales Variances, and Customer Profitability Analysis

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  1. Chapter 16Revenues, Sales Variances, and Customer Profitability Analysis

  2. Revenue Allocation • Revenue allocation occurs when revenues, related but not traceable to individual products (services or customers), are assigned to individual products • a Bundled product is a package of two or more products or services, sold for a single price, each with their own stand-alone prices • Often called suite sales • Allocate revenues to products based on • selling prices or unit costs • physical units • stand-alone product revenues • incremental revenues Pages 599 - 600

  3. Revenue Allocation – Stand Alone WordMaster $250 SpreadMaster $300 FinanceMaster $450 Suite price for all three products = $760 Allocation based on Stand-Alone Prices WordMaster $250 / $1,000 x $760 = $190 SpreadMaster $300 / $1,000 x $760 = 228 FinanceMaster $450 / $1,000 x $760 = 342 $760 Pages 600 - 601

  4. Revenue Allocation - Incremental WordMaster $250 FinanceMaster $450 SpreadMaster $300 Suite price for all three products = $760 Allocation based on Incremental Prices * FinanceMaster $450 SpreadMaster 300 FinanceMaster ($760 - $450 - $300) 10 $760 * Assume primary product is Finance, then Spread, then Word Pages 600 - 601

  5. Sales Mix Variance Sales Quantity Variance Market Size Variance Market Share Variance Sales Volume Variance Static Budget Variance Flexible Budget Variance Sales Volume Variance Sales Volume Variance = (actual unit sales - budgeted unit sales) x budgeted contribution margin per unit Pages 603 - 606

  6. Sales-Mix and Sales-Quantity Variances Sales-mix variance Actual Actual Budgeted Budgeted = units of all x sales - sales x contribution products sold mix % mix % margin per unit Sales-quantity variance Actual Budgeted Budgeted Budgeted = units of all - units of all x sales x contribution products sold products sold mix % margin per unit Pages 606 - 608

  7. Market-Share and Market-Size Variances Market-share variance Actual Actual Budgeted Budgeted average = market size x market - market x contribution in units share % share % margin per unit Market-size variance Actual Budgeted Budgeted Budgeted average = market size - market size x market x contribution in units in units share % margin per unit Pages 608 - 610

  8. Customer Profitability Analysis Consider profitability of individual customers taking into account: • customer specific costs • distribution channel costs • customer support costs • corporate sustaining costs Look at customers in terms of • short-run and long-run profitability • likelihood of retention • growth potential • increases in overall demand from well-known customers • ability to learn from a customer Pages 611 - 616

  9. Mix and Yield Variances for Inputs Mix variance Actual Budgeted Actual total Budgeted = input - input x inputs x price per mix % mix % used input unit Yield variance Actual total Budgeted total Budgeted Budgeted = units of - units of x input x price per input used inputs used mix % input unit Pages 620 - 623

  10. Price Variance Efficiency Variance Mix Variance Yield Variance Mix and Yield Variances Static Budget Variance Flexible Budget Variance Sales Volume Variance Pages 620 - 623

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