Sales-Variance Analysis

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Sales-Variance Analysis. Chapter 14. Calculation of sales variances. Overview of chapter. Calculation of sales variances Interpretation of sales variances. Overview of “Sales” variances. Actual Flexible Static

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### Sales-Variance Analysis

Chapter 14

Overview of chapter
• Calculation of sales variances
• Interpretation of sales variances
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

Budget Mkt. size

x Budget Mkt. share

x Budget sales mix

x Budget CM /unit

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.

Sales-VolumeVariance Components

The following information relates to English

Languages Institute budget for the year 2003.

ProductGrammarTrans.Comp.

Selling price per unit \$259 \$87 \$185

Variable cost 189 50 95

Contribution margin per unit \$ 70 \$37 \$ 90

Sales-VolumeVariance 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

Sales-VolumeVariance 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

per unit

\$ 75

\$40

\$ 90

Sales-VolumeVariance 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

Static-Budget Variance

Static- Static-

Actual budget budget

Productresultsamountvariance

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

Flexible-Budget Variance(actual results “budget”)

Actual

contribution Unit Actual

Productmargin/unitvolumeresults

Grammar \$75 2,880 \$216,000

Translation \$40 990 \$ 39,600

Composition \$90 630 \$ 56,700

Flexible-Budget Variance(Flexible budget)

Budgeted Actual

contribution unit Flexible

Productmargin/unitvolumebudget

Grammar \$70 2,880 \$201,600

Translation \$37 990 \$ 36,630

Composition \$90 630 \$ 56,700

Flexible-Budget Variance

Flexible- Flexible-

Actual budget budget

Productresultsamountvariance

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

Sales-Volume Variance

Budgeted

contribution

ProductActualBudgetmargin

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

Sales-Mix Variance

Sales-mix variance

=

×

(Actual sales-mix percentage

– Budgeted sales-mix percentage)

×

Budgeted contribution margin per unit

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

Sales-Quantity Variance

Sales-quantity variance

=

×

Budgeted sales-mix percentage

×

Budgeted contribution margin per unit

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

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.

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

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

Market-Share Variance ExampleAnother 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

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

Market-Size Variance ExampleAnother 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

Summary of Variances

Level 1

Static-Budget Variance

13,060 U

Level 2

Flexible-Budget

Variance

\$17,370 F

Sales-Volume

Variance

\$30,430 U

Summary of Variances

Level 2

Sales-Volume Variance

\$30,430 U

Level 3

Sales-Mix

Variance

\$3,870 U

Sales-Quantity

Variance

\$26,560 U

Summary of Variances

Level 3

Sales-Quantity Variance

\$26,560 U

Level 4

Market-Share

Variance

\$74,700 U

Market-Size

Variance

\$48,140 F