- February 11, 2019 at 5:14 pm
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.
(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
(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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