Dollar amounts in thousands

Budget info:
                      Item 1     Item 2       Item 3     total
Sales, unit           1,000       1,000       2,000       4,000
Sales, dollar         1000         1000       3000        6000
variable costs         700          1600       2300       4600
contribution margin    300          400        700        1400
manuf fixed cost       200          200        300        700
product margin         100          200        400        700
market admin cost
(all fixed)                                               250
Operating profit                                          450



Actual info:
                     Item 1     Item  2     Item  3     total
Sales, unit           800         1000        2,100       3900
Sales, dollar         810         2000       3000        5810
variable costs         560         1610       2320       4490
contribution margin    250          390        680        1320
manuf fixed cost       210          220        315        745
product margin         40           170        365        575
market admin cost
(all fixed)                                               250
Operating profit                                          300

Industry volume estimated at 40,000 items for budgeting purpose.
Acutal volume for April is 38,000 units

a. What is the sales price variance 
b. What is the sales volume variance
c. Revenue sales mix
d. Sales quantity
e. Market size
f. market - share components

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Request for Question Clarification by omnivorous-ga on 01 Aug 2005 17:00 PDT

Gofigure99 --

I'm assuming here that you're referring to the sales price range and
the sales volume range as "variance" here -- as opposed to a
statistical variance (we only have 1 month's sample here, so it makes
no sense from a statistical measurement point-of-view).

Organizations often refer to their "variances" among product lines. 
And here it's $1.0125 per/unit to $1.4286 per unit between Item 1 and
Item 3.

The sales volume variance is $810,000 to $3 million.

Best regards,

Omnivorous-GA

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Request for Question Clarification by omnivorous-ga on 01 Aug 2005 17:42 PDT

GF99 --

It's also possible that the variance you're requesting could be the
variance from budget due to selling price and the variance from budget
due to volume.
That's the second option for interpretation of (a) and (b).

Best regards,

Omnivorous-GA

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Clarification of Question by gofigure99-ga on 01 Aug 2005 17:51 PDT

I am looking for the variance between what is budgeted and what is actual

Gofigure99 ?


A. SALES PRICE VARIANCE

Original budgetary assumptions were:
Item 1: $1.00 per unit
Item 2: $1.00 per unit
Item 3: $1.50 per unit

Actuals were:
Item 1: $1.1025
Item 2: $2.00
Item 3: $1.4286

So the difference or variance between each is (brackets for negative numbers):
Item 1: $0.0125
Item 2: $1.00
Item 3: ($0.0714)

But in seeking the sales price variance, you?re seeking the change in
your actual revenues caused by price, so it?s now the total of these
three items:

Item 1 revenue change: $0.0125 * 800 = $10.00
Item 2 revenue change: $1 * 1,000 = $1,000
Item 3 revenue change: ($0.0714) * 2,100 = ($149.94)

TOTAL PRICE VARIANCE = $860.06


B. SALES VOLUME VARIANCE

Budget:
Item 1: 1,000 units
Item 2: 1,000
Item 3: 2,000
  
Actual:
Item 1:  800
Item 2: 1,000
Item 3: 2,100

Difference:
Item 1: (200)
Item 2: 0
Item 3: 100

Variance in revenues:
Item 1: (200) * $1.0125 = ($202.50)
Item 2: 0
Item 3: 100 * $1.4286 = $142.86

TOTAL VOLUME VARIANCE: ($59.46)


C. REVENUE SALES MIX

Item 1:$810/$5,810 = 13.94 %
Item 2: $2,000/$5,810 = 34.42%
Item 3: $3,000/$5,810 = 51.64%


D. SALES QUANTITY (MIX)

The sales quantity if 3,900 units.  In figuring market share, if
quantity is used (see question E), the mix is:
Item 1: 800/3,900 = 20.51%
Item 2: 1,000/3,900 = 25.64%
Item 3: 2,100/3,900 =  53.85%


E. MARKET SIZE

Industry volume is 38,000 units, giving us a unit share of 10.26%.  We
can figure market size by assuming we have the same 10.26% share in
revenues (that the industry has the same average selling price for
each type of unit) ?

$5,810,000 / 0.1026 = $56,627,680


F. MARKET SHARE COMPONENTS

The market share components are unit share; revenue share; and segment data.
Unit share has already been calculated ? as has revenue share ? and
both are 10.26%.

However, it?s helpful to know the segment size for each item for the
industry.  We may find that average sales prices are different for
other companies ? or that their sales mix is different ? leading to
price changes or other action to be more competitive.  Segment and
share data is also helpful in budgeting for future months because each
industry has periods that are busier.

OUR PRODUCT MIX:
Item 1: 800/3,900 = 20.51%
Item 2: 1,000/3,900 = 25.64%
Item 3: 2,100/3,900 =  53.85%

ASSUMED INDUSTRY PRODUCT MIX (April = 38,000):
Item 1:  7,794
Item 2:  9,743
Item 3: 20,463


This last category ?share components? is somewhat vague, so please let
me know via a Clarification Request if some portion of the analysis is
missing.

Best regards,

Omnivorous-GA

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Clarification of Answer by omnivorous-ga on 02 Aug 2005 08:27 PDT

Gofigure99  --

Note that because all dollar amounts are in thousands, (A) and (B) are
in thousands as well.  Thus,
TOTAL PRICE VARIANCE = $860,060

and 

TOTAL VOLUME VARIANCE = ($59,460)

Best regards,

Omnivorous-GA

I think some of the confusion arises from the use of the word
variance.  In the instances above:
"I am looking for the variance between what is budgeted and what is actual."
"So the difference or variance between each is (brackets for negative numbers)."
This "variance" is actually a difference or deviation.  The terms are
not interchangeable in a statistical sense.  Variance refers to a
spread or scatter, while deviation refers to a difference or
subtraction.