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Below question from BBP. Don’t know how to do it. Please help me!
A company manufactures a specific clinical machine used in hospitals. The company holds a 2% share of the market and the total demand has been constant at 250,000 machines for the last few years. The budgeted selling price for each machine is $10,000 and standard contribution is equivalent to 10% of the budgeted selling price.
An initial performance review of the company’s actual results showed a sales volumes of 5,600 machine had been achieved. The total market demand for the machines, though, had risen to 300,000 units.
What is the market share variance for the clinical machines?
A. $200,000 favourable
B. $400,000 adverse
C. $600,000 favourable
D. $1,000,000 adverseThe company will have budgeted on selling 2% x 250,000 = 5,000 units.
They actually sold 5,600 units, which is 600 more than budget.There are two reasons for this. One is that the demand in the market as a whole has gone up to 300,000, the other is that their share of the market is a little less than 2% (5,600 / 300000)
Had their share of the market not changed, they would have sold 2% x 300,000 = 6,000.
Therefore, the market share variance is 6000 – 5600 = 400 units (adverse). This is costed out, as usual, at the standard contribution.
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