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- April 22, 2022 at 1:57 am #654246
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 yearSales volume(units):500, 300, 400
The entire market has decreased by 25% compared to last year. The product will be obsolete in four yearsSales revenue:$50,000, $28,500, $40,000
Rivalry in the market saw selling prices fall by 10%Total material cost: $10,000, $6,500, $8,000
As demand for the raw materials is decreasing, suppliers lowered their prices by 5%After adjusting for the external factors outside the manager’s control, in which category/categories is/are there evidence of poor performance?
A Material cost only
B Sales volume and sales price
C Sales price and material cost
D Sales price onlyHello sir, The answer is A but i don’t understand how? as i even see the sales volume and revenue as adverse. Can you please help me.
Thank you
April 22, 2022 at 7:45 am #654251The question is not asking whether or not the variances are adverse, but whether they are due to factors over which the manager has control.
The volume in the market as a whole has called by 25% since last year and therefore we would expect our sales volume to fall by 25%. It has fallen by 25% and this is not the fault of the manager.
Selling prices in the market as a whole have fallen by 10% and therefore we would not be surprised if we had to reduce our prices by 10%. Our prices last year were $100 per unit and this year were $95 per unit. Therefore our prices have fallen by only 5% which is good performance by the manager.
Material prices in the market have fallen by 5%. We were paying $20 per unit last year and are paying $21.67 this year. So we are paying more and yet we should have expected to pay less. This seems to be poor performance by the manager.
April 24, 2022 at 1:50 pm #654351Thank you so much sir.
April 24, 2022 at 6:52 pm #654369You are welcome.
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