Sales-Variance Analysis

1
Sales-Variance Analysis

• Chapter 14

2

Calculation of sales variances
3
Overview of chapter

• Calculation of sales variances
• Interpretation of sales variances

4
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
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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.

6
Sales-VolumeVariance 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
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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
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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
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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
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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
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Flexible-Budget Variance(actual results budget)
Actual contribution Unit
Actual Product margin/unit volume
results Grammar 75 2,880 216,000 Translati
on 40 990 39,600 Composition 90
630 56,700
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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
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Flexible-Budget Variance
Flexible- Flexible-
Actual budget budget Product
results amount variance Grammar 216,00
0 201,600 14,400 F Translation 39,600
36,630 2,970 F Composition 56,700
56,700 0 Total flexible-budget
variance 17,370 F
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Sales-Volume Variance
Budgeted contribution Prod
uct 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
15
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

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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
17
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

18
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
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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.
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Market-Share Variance Example
What is Englishs 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
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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
22
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
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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
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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
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Summary of Variances
Static-Budget Variance 13,060 U
Level 1
Level 2
Flexible-Budget Variance 17,370 F
Sales-Volume Variance 30,430 U
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Summary of Variances
Sales-Volume Variance 30,430 U
Level 2
Level 3
Sales-Mix Variance 3,870 U
Sales-Quantity Variance 26,560 U
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Summary of Variances
Sales-Quantity Variance 26,560 U
Level 3
Level 4
Market-Share Variance 74,700 U
Market-Size Variance 48,140 F
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Another ExampleBOZOtronics(on class
webpage)End of Chapter 14