Sales-Variance Analysis
Chapter 14
2009 Foster School of Business
Cost Accounting
L.DuCharme
1
Calculation of sales variances
2009 Foster School of Business
Cost Accounting
L.DuCharme
2
Overview of chapter
• Calculation of sales variances
• Interpretation of sales variances
2009 Foster School of Business
Cost Accounting
L.DuCharme
3
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
2009 Foster School of Business
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:
(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
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
2009 Foster School of Business
Cost Accounting
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6
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
2009 Foster School of Business
Cost Accounting
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7
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
2009 Foster School of Business
Cost Accounting
Translation Composition
L.DuCharme
8
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
2009 Foster School of Business
Cost Accounting
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9
Static-Budget Variance
Product
Grammar
Translation
Composition
Total
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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
2009 Foster School of Business
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
2009 Foster School of Business
Cost Accounting
Actual
unit
volume
2,880
990
630
L.DuCharme
Flexible
budget
$201,600
$ 36,630
$ 56,700
12
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
2009 Foster School of Business
Cost Accounting
L.DuCharme
Flexiblebudget
variance
$14,400 F
$ 2,970 F
0
$17,370 F
13
Sales-Volume Variance
Product
Actual Budget
Grammar
(2,880 – 3,185)
Translation
(990 – 980)
Composition (630 – 735)
Total sales-volume variance
2009 Foster School of Business
Cost Accounting
L.DuCharme
Budgeted
contribution
margin
× $70 = $21,350 U
× $37 =
370 F
× $90 =
9,450 U
$30,430 U
14
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
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Cost Accounting
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15
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
2009 Foster School of Business
Cost Accounting
= $3,870 U
L.DuCharme
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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
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17
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
2009 Foster School of Business
Cost Accounting
L.DuCharme
= $18,200 U
= $ 2,960 U
= $ 5,400 U
= $26,560 U
18
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.
2009 Foster School of Business
Cost Accounting
L.DuCharme
19
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
2009 Foster School of Business
Cost Accounting
L.DuCharme
20
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
2009 Foster School of Business
Cost Accounting
L.DuCharme
21
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
2009 Foster School of Business
Cost Accounting
L.DuCharme
22
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
2009 Foster School of Business
Cost Accounting
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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
2009 Foster School of Business
Cost Accounting
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24
Summary of Variances
Static-Budget Variance
13,060 U
Level 1
Level 2
Flexible-Budget
Variance
$17,370 F
2009 Foster School of Business
Cost Accounting
L.DuCharme
Sales-Volume
Variance
$30,430 U
25
Summary of Variances
Level 2
Level 3
2009 Foster School of Business
Sales-Volume Variance
$30,430 U
Sales-Mix
Variance
$3,870 U
Cost Accounting
L.DuCharme
Sales-Quantity
Variance
$26,560 U
26
Summary of Variances
Sales-Quantity Variance
$26,560 U
Level 3
Level 4
Market-Share
Variance
$74,700 U
2009 Foster School of Business
Cost Accounting
L.DuCharme
Market-Size
Variance
$48,140 F
27
Another Example
BOZOtronics
(on class webpage)
****************
End of Chapter 14
2009 Foster School of Business
Cost Accounting
L.DuCharme
28
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