How is the following type of variance calculated?
Question: Leaf Limited had a mixed year. Its market share has improved 2% to 20% but the overall market had contracted by 5% in the same period. The budgeted sales were 504000 units and standard contribution was 12 per unit.
The sales market size variance is:
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5y ago#1When they did the budget, the expected the market share to be 18% (20% – 2%).
Since the budgeted on sales of 504,000, they must have expected the market to be 504,000 / 18% = 2,800,000.
In fact the market contracted by 5%, so the actual market was 95% x 2,800,000 = 2,660,000.
The actual market share was 20%, and so their actual sales were 20% x 2,660,000 = 532,000.
How is market size variance calculated
5y ago#3The difference between the budgeted sales (of 504,000) and what the sales would have been if the only thing that had changed was the market size (i.e. 18% x 2,660,000). Costed out at the standard contribution per unit.
(The original exam question did not ask for the variance :-) )
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