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Bloom Limited was the subject of the following press story: “Bloom is proud to announce that it has managed to maintain its market share despite an overall increase in the market size by 10%.” However, the sales director when challenged, by this journalist recently admitted having been forced to reduce prices by $1.50 per bunch on average on a budget volume of 12,000 bunches. All is not as rosy as it seems in Bloom’s garden!” If the standard variable cost of a bloom bunch of flowers is $20 and the standard contribution gained is $5.
What is the adverse sales price and volume variance (to the nearest $)
I really can’t understand how am I supposed to get the standard price or current price? How would you solve this sir?
Given that the standard contribution is $5 and the standard variable cost is $20, the standard selling price is 20 + 5 = $25.
They have been forced to reduce the selling prices by $1.50, and therefore the actual selling price is 25 – 1.50 = $23.50.
Thank you sir, I didn’t notice the variable cost? My bad.
Sir I have another question, what’s market size variance?
There are two reasons why our sales volume might be different from what we budgeted.
One reason is that the overall size of the market might change (for example, it the market as a whole grew by 10% then this would mean that we would expect our share to increase by 10% as well) this is the market size variance.
The other reason is that our share of the market might change (for example, we might have budgeted on having a 10% share but ended up only having an 8% share) this is the market share variance.
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