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

sales volume variance components
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 volume variance components budget
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 volume variance components1
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 volume variance components actual
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-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
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
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-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
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

Sales-mix variance

=

Actual units of all products sold

×

(Actual sales-mix percentage

– Budgeted sales-mix percentage)

×

Budgeted contribution margin per unit

sales mix variance1
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

Sales-quantity variance

=

(Actual units of all products sold

– Budgeted units of all products sold)

×

Budgeted sales-mix percentage

×

Budgeted contribution margin per unit

sales quantity variance1
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
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 example1
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 example2
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 example another way calculate budgets
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 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 example another way calculate budgets
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
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 variances1
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 variances2
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

another example bozotronics on class webpage end of chapter 14

Another ExampleBOZOtronics(on class webpage)****************End of Chapter 14