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
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2009 Foster School of Business Cost Accounting L.DuCharme 2
Calculation of sales variances
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2009 Foster School of Business Cost Accounting L.DuCharme 3
Overview of chapter
• Calculation of sales variances
• Interpretation of sales variances
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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
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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.
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
=
×
×
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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
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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
=
××
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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2009 Foster School of Business Cost Accounting L.DuCharme 28
Another ExampleBOZOtronics
(on class webpage)
****************End of Chapter 14