```Sales-Variance Analysis
Chapter 14
Cost Accounting
L.DuCharme
1
Calculation of sales variances
Cost Accounting
L.DuCharme
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Overview of chapter
• Calculation of sales variances
• Interpretation of sales variances
Cost Accounting
L.DuCharme
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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
Cost Accounting
L.DuCharme
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
4
Things to note:
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.
Cost Accounting
L.DuCharme
5
Sales-Volume
Variance Components
The following information relates to English
Languages Institute budget for the year 2003.
Product
Grammar Trans. Comp.
Selling price per unit
\$259
\$87
\$185
Variable cost
189
50
95
Contribution margin per unit \$ 70
\$37
\$ 90
Cost Accounting
L.DuCharme
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Sales-Volume
Variance 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
Cost Accounting
L.DuCharme
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Sales-Volume
Variance Components
The following are the actual results for
English Languages for the year 2003.
Product
Grammar
Selling \$/unit
\$255
\$85
\$185
Variable cost
180
45
95
Cont. margin
per unit
\$ 75
\$40
\$ 90
Cost Accounting
Translation Composition
L.DuCharme
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Sales-Volume
Variance 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
Cost Accounting
L.DuCharme
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Static-Budget Variance
Product
Grammar
Translation
Composition
Total
Actual
results
\$216,000
39,600
56,700
\$312,300
Cost Accounting
StaticStaticbudget
budget
amount
variance
\$222,950 \$ 6,950 U
36,260
3,340 F
66,150
9,450 U
\$325,360 \$13,060 U
L.DuCharme
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Flexible-Budget Variance
(actual results “budget”)
Actual
contribution
Product
margin/unit
Grammar
\$75
Translation
\$40
Composition
\$90
Cost Accounting
Unit
volume
2,880
990
630
L.DuCharme
Actual
results
\$216,000
\$ 39,600
\$ 56,700
11
Flexible-Budget Variance
(Flexible budget)
Budgeted
contribution
Product
margin/unit
Grammar
\$70
Translation
\$37
Composition
\$90
Cost Accounting
Actual
unit
volume
2,880
990
630
L.DuCharme
Flexible
budget
\$201,600
\$ 36,630
\$ 56,700
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Flexible-Budget Variance
FlexibleActual
budget
Product
results
amount
Grammar
\$216,000
\$201,600
Translation \$39,600
\$ 36,630
Composition \$56,700
\$ 56,700
Total flexible-budget variance
Cost Accounting
L.DuCharme
Flexiblebudget
variance
\$14,400 F
\$ 2,970 F
0
\$17,370 F
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Sales-Volume Variance
Product
Actual Budget
Grammar
(2,880 – 3,185)
Translation
(990 – 980)
Composition (630 – 735)
Total sales-volume variance
Cost Accounting
L.DuCharme
Budgeted
contribution
margin
× \$70 = \$21,350 U
× \$37 =
370 F
× \$90 =
9,450 U
\$30,430 U
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Sales-Mix Variance
Sales-mix variance
=
×
×
(Actual sales-mix percentage
– Budgeted sales-mix percentage)
Budgeted contribution margin per unit
Cost Accounting
L.DuCharme
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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
Cost Accounting
= \$3,870 U
L.DuCharme
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Sales-Quantity Variance
Sales-quantity variance
=
×
×
Budgeted sales-mix percentage
Budgeted contribution margin per unit
Cost Accounting
L.DuCharme
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Sales-Quantity Variance
Grammar:
(4,500 – 4,900) × 0.65 × \$70
Translation:
(4,500 – 4,900) × 0.20 × \$37
Composition:
(4,500 – 4,900) × 0.15 × \$90
Total sales-quantity variance
Cost Accounting
L.DuCharme
= \$18,200 U
= \$ 2,960 U
= \$ 5,400 U
= \$26,560 U
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Market-Share Variance Example
Assume that English Languages Institute derives
its total unit sales budget for 2003 from a
management estimate of a 20% market share
and a total industry sales forecast by Desert
Services of 24,500 units in the region.
In 2003, Desert Services reported actual
industry sales of 28,125 units.
Cost Accounting
L.DuCharme
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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 average
contribution margin per unit?
\$325,360 ÷ 4,900 = \$66.40
Cost Accounting
L.DuCharme
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Market-Share Variance Example
What is the market-share variance?
=
×
×
Actual market size in units
(Actual market share
– Budgeted market share)
Budgeted contribution margin per
composite unit for budgeted mix
28,125(0.16 – 0.20) × \$66.40 = \$74,700 U
Cost Accounting
L.DuCharme
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Market-Share Variance Example
Another 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
Cost Accounting
L.DuCharme
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Market-Size Variance Example
Market-size variance
=
×
×
(Actual market size in units
– Budgeted market size in units)
Budgeted market share
Budgeted contribution margin per
composite unit for budgeted mix
(28,125 – 24,500) × 0.20 × \$66.40 = \$48,140 F
Cost Accounting
L.DuCharme
23
Market-Size Variance Example
Another 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 Unit
24,500 × 0.20 × \$66.40 = \$325,360
\$373,500 – \$325,360 = \$48,140 F
Cost Accounting
L.DuCharme
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Summary of Variances
Static-Budget Variance
13,060 U
Level 1
Level 2
Flexible-Budget
Variance
\$17,370 F
Cost Accounting
L.DuCharme
Sales-Volume
Variance
\$30,430 U
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Summary of Variances
Level 2
Level 3
Sales-Volume Variance
\$30,430 U
Sales-Mix
Variance
\$3,870 U
Cost Accounting
L.DuCharme
Sales-Quantity
Variance
\$26,560 U
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Summary of Variances
Sales-Quantity Variance
\$26,560 U
Level 3
Level 4
Market-Share
Variance
\$74,700 U
Cost Accounting
L.DuCharme
Market-Size
Variance
\$48,140 F
27
Another Example
BOZOtronics
(on class webpage)
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End of Chapter 14
Cost Accounting
L.DuCharme
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