2009 foster school of business cost accounting l.ducharme 1 sales-variance analysis chapter 14
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2009 Foster School of Business Cost Accounting L.DuCharme 1
Sales-Variance Analysis
Chapter 14
2009 Foster School of Business Cost Accounting L.DuCharme 2
Calculation of sales variances
2009 Foster School of Business Cost Accounting L.DuCharme 3
Overview of chapter
• Calculation of sales variances
• Interpretation of sales variances
2009 Foster School of Business Cost Accounting L.DuCharme 4
Overview of “Sales” variances
Actual Flexible Static
Budget Budget
|----- Flex. V.-----|-------------- Sales-volume V.---------------|
|--- Sales-Mix V.---|----------- Sales-Quant.V.------------|
|-- Mkt.-share V. --|-- Mkt.-size V.--|
Actual Mkt. size
x Actual Mkt. share
x Actual sales mix
x Actual CM /unit
Actual Mkt. size
x Actual Mkt. share
x Actual sales mix
x Budget CM /unit
Actual Mkt. size
x Actual Mkt. share
x Budget sales mix
x Budget CM /unit
Actual Mkt. size
x Budget Mkt. share
x Budget sales mix
x Budget CM /unit
Budget Mkt. size
x Budget Mkt. share
x Budget sales mix
x Budget CM /unit
2009 Foster School of Business Cost Accounting L.DuCharme 5
Things to note:
(1) Total number of units of all products sold = market size * market share
(2) Number of each product sold = market size * market share * sales mix
(3) Average CM / unit = sales mix * CM / unit
(4) “Revenue” variances can be calculated by substituting sales price for CM in all of the equations on the prior slide.
2009 Foster School of Business Cost Accounting L.DuCharme 6
Sales-VolumeVariance Components
The following information relates to EnglishLanguages Institute budget for the year 2003.
Product Grammar Trans. Comp.Selling price per unit $259 $87 $185Variable cost 189 50 95Contribution margin per unit $ 70 $37 $ 90
2009 Foster School of Business Cost Accounting L.DuCharme 7
Sales-VolumeVariance Components-budget
Product Grammar Translation Composition
Cont. margin $70 $37 $90
× Units 3,185 980 735
= Total $222,950 $36,260 $66,150
Sales mix 65% 20% 15%
Total budgeted contribution margin = $325,360
2009 Foster School of Business Cost Accounting L.DuCharme 8
Sales-VolumeVariance Components
Product Grammar Translation Composition
Selling $/unit $255 $85 $185
Variable cost 180 45 95
Cont. marginper unit
$ 75 $40 $ 90
The following are the actual results forEnglish Languages for the year 2003.
2009 Foster School of Business Cost Accounting L.DuCharme 9
Sales-VolumeVariance Components--actual
Product Grammar Translation Composition
Cont. margin $75 $40 $90
× Units 2,880 990 630
= Total $216,000 $39,600 $56,700
Sales mix 64% 22% 14%
Total actual contribution margin = $312,300
2009 Foster School of Business Cost Accounting L.DuCharme 10
Static-Budget Variance
Static- Static- Actual budget budget
Product results amount varianceGrammar $216,000 $222,950 $ 6,950 UTranslation 39,600 36,260 3,340 FComposition 56,700 66,150 9,450 U Total $312,300 $325,360 $13,060 U
2009 Foster School of Business Cost Accounting L.DuCharme 11
Flexible-Budget Variance(actual results “budget”)
Actual contribution Unit Actual
Product margin/unit volume resultsGrammar $75 2,880 $216,000Translation $40 990 $ 39,600Composition $90 630 $ 56,700
2009 Foster School of Business Cost Accounting L.DuCharme 12
Flexible-Budget Variance(Flexible budget)
Budgeted Actual contribution unit Flexible
Product margin/unit volume budgetGrammar $70 2,880 $201,600Translation $37 990 $ 36,630Composition $90 630 $ 56,700
2009 Foster School of Business Cost Accounting L.DuCharme 13
Flexible-Budget Variance
Flexible- Flexible- Actual budget budget
Product results amount varianceGrammar $216,000 $201,600 $14,400 FTranslation $39,600 $ 36,630 $ 2,970 FComposition $56,700 $ 56,700 0Total flexible-budget variance $17,370 F
2009 Foster School of Business Cost Accounting L.DuCharme 14
Sales-Volume Variance
Budgetedcontribution
Product Actual Budget margin Grammar (2,880 – 3,185) × $70 = $21,350 U Translation (990 – 980) × $37 = 370 FComposition (630 – 735) × $90 = 9,450 UTotal sales-volume variance $30,430 U
2009 Foster School of Business Cost Accounting L.DuCharme 15
Sales-Mix Variance
Sales-mix variance
Actual units of all products sold
(Actual sales-mix percentage– Budgeted sales-mix percentage)
Budgeted contribution margin per unit
=
×
×
2009 Foster School of Business Cost Accounting L.DuCharme 16
Sales-Mix Variance
Grammar: 4,500(0.64 – 0.65) × $70 = $3,150 U
Translation: 4,500(0.22 – 0.20) × $37 = $3,330 F
Composition: 4,500(0.14 – 0.15) × $90 = $4,050 U
Total sales-mix variance = $3,870 U
2009 Foster School of Business Cost Accounting L.DuCharme 17
Sales-Quantity Variance
Sales-quantity variance
(Actual units of all products sold– Budgeted units of all products sold)
Budgeted sales-mix percentage
Budgeted contribution margin per unit
=
××
2009 Foster School of Business Cost Accounting L.DuCharme 18
Sales-Quantity Variance
Grammar: (4,500 – 4,900) × 0.65 × $70 = $18,200 U
Translation: (4,500 – 4,900) × 0.20 × $37 = $ 2,960 U
Composition: (4,500 – 4,900) × 0.15 × $90 = $ 5,400 U
Total sales-quantity variance = $26,560 U
2009 Foster School of Business Cost Accounting L.DuCharme 19
Market-Share Variance Example
Assume that English Languages Institute derivesits total unit sales budget for 2003 from a
management estimate of a 20% market shareand a total industry sales forecast by Desert
Services of 24,500 units in the region.
In 2003, Desert Services reported actualindustry sales of 28,125 units.
2009 Foster School of Business Cost Accounting L.DuCharme 20
Market-Share Variance Example
What is English’s actual market share?
4,500 ÷ 28,125 = 0.16
Budgeted total contribution margin is $325,360.
Budgeted number of units is 4,900.
What is the budgeted averagecontribution margin per unit?
$325,360 ÷ 4,900 = $66.40
2009 Foster School of Business Cost Accounting L.DuCharme 21
Market-Share Variance Example
What is the market-share variance?
Actual market size in units
(Actual market share– Budgeted market share)
Budgeted contribution margin percomposite unit for budgeted mix
=
×
×
28,125(0.16 – 0.20) × $66.40 = $74,700 U
2009 Foster School of Business Cost Accounting L.DuCharme 22
Market-Share Variance ExampleAnother way: calculate budgets
Actual Market Size × Actual Market Share× Budgeted Average Contribution Margin Per Unit
28,125 × 0.16 × $66.40 = $298,800
Actual Market Size × Budgeted Market Share× Budgeted Average Contribution Margin Per Unit
28,125 × 0.20 × $66.40 = $373,500
$373,500 – $298,800 = $74,700 U
2009 Foster School of Business Cost Accounting L.DuCharme 23
Market-Size Variance Example
Market-size variance
(Actual market size in units– Budgeted market size in units)
Budgeted market share
Budgeted contribution margin percomposite unit for budgeted mix
=
×
×
(28,125 – 24,500) × 0.20 × $66.40 = $48,140 F
2009 Foster School of Business Cost Accounting L.DuCharme 24
Market-Size Variance ExampleAnother way: calculate budgets
Actual Market Size × Budgeted Market Share× Budgeted Average Contribution Margin Per Unit
28,125 × 0.20 × $66.40 = $373,500
Static Budget: Budgeted Market Size× Budgeted Market Share
× Budgeted Average Contribution Margin Per Unit24,500 × 0.20 × $66.40 = $325,360
$373,500 – $325,360 = $48,140 F
2009 Foster School of Business Cost Accounting L.DuCharme 25
Summary of Variances
Static-Budget Variance13,060 U
Level 1
Level 2Flexible-Budget
Variance$17,370 F
Sales-VolumeVariance
$30,430 U
2009 Foster School of Business Cost Accounting L.DuCharme 26
Summary of Variances
Sales-Volume Variance$30,430 U
Level 2
Level 3Sales-MixVariance$3,870 U
Sales-QuantityVariance
$26,560 U
2009 Foster School of Business Cost Accounting L.DuCharme 27
Summary of Variances
Sales-Quantity Variance$26,560 U
Level 3
Level 4Market-Share
Variance$74,700 U
Market-SizeVariance$48,140 F
2009 Foster School of Business Cost Accounting L.DuCharme 28
Another ExampleBOZOtronics
(on class webpage)
****************End of Chapter 14
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