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planning and operational variance

Forums › ACCA Forums › ACCA PM Performance Management Forums › planning and operational variance

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by f6ali.
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  • February 11, 2019 at 5:14 pm #504801
    reem1589
    Participant
    • Topics: 61
    • Replies: 17
    • ☆☆

    A company sets its sales budget based on an average price of $14per unit and sales volume of 250,000 units. Competition was more intense than expected and the company only achieved sales of 220,000 and had to sell at a discounted price of $12.50 per unit. The company was unable to reduce costs so profit per unit fell from $4 per unit to $2.50 per unit. It was estimated that the total market volume grew by 10% from1,000,000 units to 1,100,000 units.
    Required:
    (a) Calculate the sales price and volume variances.
    (b) Analyse the volume variances into market share and market size.
    (c) Discuss whether the price variance is a planning or operational variance.

    In the following question please explain how to attempt part b and c.

    February 12, 2019 at 6:50 pm #504943
    f6ali
    Member
    • Topics: 10
    • Replies: 342
    • ☆☆☆

    (b) Based on Budgeted Sales of 250,000 units, we can say that company has a market share of 25%, i.e of the total demand of 1 million units in the market, 25% demand is fulfilled by the company.

    The overall market has grown by 10%, but the company’s share of the market remained same, meaning company’s demand is still 25% of the new total demand. Hence,

    Revised Standard Sales = 1,100,000*25% = 275,000 units

    Market Size Variance = (250,000 – 275,000)*$4 = $100,000 Favorable

    Market Share Variance = (275,000 – 220,000)*$4 = $220,000 Adverse

    Note: Sales Volume Planning Variance is also called Market Size Variance, Sales Volume Operational Variance is also called Market Share Variance.

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