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Q: Sales variances ( Answered ,   1 Comment )
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 Subject: Sales variances Category: Business and Money > Accounting Asked by: gofigure99-ga List Price: \$25.00 Posted: 01 Aug 2005 10:35 PDT Expires: 31 Aug 2005 10:35 PDT Question ID: 550449
 ```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``` 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``` 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``` 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``` 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.```