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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 year
Sales volume(units) 500 300 400
Market expert notes : The entire market has decreased by 25% compared to last year.The product will be obsolute in four years.
Sales revenue $50000 $28500 $40000
Market expert notes: Rivalry in the market saw selling prices fall by 10%
Total material cost $10000 $6500 $8000
Market expert notes: As demand for the raw materials is decreasing , suppliers lowered their prices by 5%.
After adjusting for the external factors outside the maanger’s control , in which category / categories is there evidence of poor performance?
A. Material costs only
B Sales volume and sales price
C Sales price and material cost
D sales price onlyi understood about poor performance in material cost. sale price shows good performance but can you explain sales volume one?
like if we compare current yr values 500 budgeted units and The entire market has decreased
by 25% compared to last year but we dont know the market share of this company.Given that the entire market has fallen by 25%, then if our market share was to remain the same we would expect our sales to drop by 25% also.
Our sales in fact have dropped by 25% (300 this year as against 400 last year).
but why aren’t we comparing it with budget this year and actual this year like flex budget. wouldn’t we know about 25% fall in market share when deciding budgeted this year units?
so 500×25%=375?
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