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© 2009 Pearson Prentice Hall. All rights reserved.
Sales-Variance Analysis
© 2009 Pearson Prentice Hall. All rights reserved.
Customer RevenuesPrice discounting is the reduction
of selling prices to encourage increases in customer purchasesLower sales price is a tradeoff for larger sales volumes
Discounts should be tracked by customer and salesperson
© 2009 Pearson Prentice Hall. All rights reserved.
Customer Profitability Analysis Illustrated
© 2009 Pearson Prentice Hall. All rights reserved.
Sales VariancesLevel 1: Static-budget variance – the difference between an actual result and the static-budgeted amount
Level 2: Flexible-budget variance – the difference between an actual result and the flexible-budgeted amount
Level 2: Sales-volume varianceLevel 3: Sales Quantity varianceLevel 3: Sales Mix variance
(c) 2009 Pearson Prentice Hall. All rights reserved.
Sales-Mix VarianceMeasures shifts between selling more or less of higher or lower profitable products
Budgeted Sales-Mix
Percentage
Actual Sales-Mix Percentage
XBudgeted
Contribution Margin per Unit
Sales-Mix Variance =
Actual Units of
All Products
Sold
X
© 2009 Pearson Prentice Hall. All rights reserved.
Sales-Quantity Variance
Budgeted Units of all
Products Sold
Actual Units of All Products Sold
Budgeted Contribution
Margin per Unit
Sales-Quantity Variance
=
Budgeted Sales-Mix
PercentageX X
© 2009 Pearson Prentice Hall. All rights reserved.
Flexible-Budget and Sales-Volume Variances Illustrated
© 2009 Pearson Prentice Hall. All rights reserved.
Sales-Mix and –Quantity Variances Illustrated
© 2009 Pearson Prentice Hall. All rights reserved.
Market-Share Variance
Budgeted Market Share
Actual Market Share
X
Budgeted Contribution Margin per
Composite Unit for Budgeted
Mix
Market-Share
Variance=
Actual Market Size in Units
X
© 2009 Pearson Prentice Hall. All rights reserved.
Market-Size Variance
BudgetedMarket
Size
Actual Market Size
Budgeted Contribution Margin per
Composite Unit for Budgeted
Mix
Market-Size Variance =
Budgeted Market Share
X X
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Market-Share and –Size Variances Illustrated
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Market-Share and Market-Size VariancesLimitation: reliable information on the actual size and share of various markets is not always available
These are considered Level 4 variances (a decomposition of the Sales-Quantity variance
© 2009 Pearson Prentice Hall. All rights reserved.
Sales Variances Summarized
© 2009 Pearson Prentice Hall. All rights reserved.18-14
Analysis of Profit Related Analysis of Profit Related VariancesVariances
6
Sales price variance = (actual price – expected price) X Quantity sold
Price Volume Variance = (Actual volume – Expected volume) X expected price
© 2009 Pearson Prentice Hall. All rights reserved.18-15
Analysis of Profit Related Analysis of Profit Related VariancesVariances
6
Contribution Margin Variance = Annual contribution margin - Budgeted contribution margin
Contribution margin volume variance = (Actual quantity sold – Budgeted quantity sold) X Budgeted average unit contribution margin
© 2009 Pearson Prentice Hall. All rights reserved.18-16
Analysis of Profit Related Analysis of Profit Related VariancesVariances
6
Sales Mix Variance = [(Product 1 actual units – Product 1 budgeted units) X (Product 1 budgeted unit contribution margin – Budgeted average unit contribution margin] + [(Product 2 actual units – Product 2 budgeted units) X (Product 2 budgeted unit contribution margin – Budgeted average unit contribution margin]
© 2009 Pearson Prentice Hall. All rights reserved.18-17
Analysis of Profit Related Analysis of Profit Related VariancesVariances
6
Market Share Variance = [(Actual market share percentage – Budgeted market share percentage) X (Actual industry sales in units)] X ( Budgeted average unit contribution margin)
Market Size Variance = [(Actual industry sales in units – Budgeted industry sales in units) X (Budgeted market share percentage)] (Budgeted average unit contribution margin)
