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Leaf limited has had a mixed year. Its market share has improved two percentage points to
20% but the overall market had contracted by 5% in the same period. The budgeted sales
were 504,000 units and standard contribution was $12 per unit.
What is the level of actual sales?1. “Its market share has improved two percentage points to 20% but the overall market had contracted by 5% in the same period” . Could you explain what does this sentence mean?
2. How to obtain the answer?
The budgeted market share must have been 18% (20% – 2%).
Therefore when they prepared the budget they were expecting an 18% share of the total market and therefore they expected the total market to be 504,000/18% = 2,800,000 units.
The market contracted by 5%, and therefore the actual total market was 95% x 2,800,000 = 2,660,000 units.
Their actual share of the market was 20%, and therefore their actual sales were 20% x 2,660,000 = 532,000 units.
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