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A profit centre manager claims that the poor performance of her division is entirely due to factors outside her control. She has submitted the following table along with notes from a market expert , which she believes explains the cause of the poor performance :
Category Budget this year Actual this year Actual last year
Sales volume(units) 500 300 400
Market expert notes : The entire market has decreased by 25% compared to last year.The product will be obsolute in four years.
Sales revenue $50000 $28500 $40000
Market expert notes: Rivalry in the market saw selling prices fall by 10%
Total material cost $10000 $6500 $8000
Market expert notes: As demand for the raw materials is decreasing , suppliers lowered their prices by 5%.
After adjusting for the external factors outside the maanger’s control , in which category / categories is there evidence of poor performance?
A. Material costs only
B Sales volume and sales price
C Sales price and material cost
D sales price onlyWell i did understand the fact that for sales price, manager did well, Standard price=$100, as price falls by 10% revised SP is $90.. and actual is $95 (28500/300).
Can you please elaborate how
i) there is a poor performance on material ?
ii) how manager performed well in connection with sales volume?I) Last year the cost of material was $8,000/400 = $20 per unit.
This year suppliers dropped their prices by 5% and therefore we would expect to pay $19 per unit.
This year, the actual cost is $6,500/300 = $21.67 per unit. So we are paying more rather than less, which is poor performance.ii) Last year the sales volume was 400 units.
The market has fallen 25% and so we would expect sales this year to be 300 units.
They actually did sell 300 units this year and so that is not poor performance – it is due to factors outside her control.
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