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Could you please explain how to solve the following question.
Hudson has a sales budget of 400,000 units for the coming year based on 20% of the total market. On each unit, Hudson makes a profit of$3. Actual sales for the year were 450,000, but industry reports showed that the total market volume had been 2.2 million.
(a) Find the traditional sales volume variance.
(b) Split this into planning and operational variances (market size and market share). Comment on your results.(a)
Sales Volume Variance=(Budgeted Sales – Actual Sales)*Standard Profit
Sales Volume Variance = (400,000 – 450,000)*$3 = $150,000 Favorable(b) Budgeted Sales = 400,000
Revised Standard Sales = 2,200,000*20% = 440,000Planning Variance = (400,000 – 440,000)*$3 = $120,000 Favorable
Operational Variance = (440,000 – 450,000)*$3 = 30,000 Favorable
Total = $120,000 + $30,000 = $150,000
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