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14-25 (20 min.) Market-share and market-size variances (continuation of 14-24).

 Actual    Budgeted

Western region24 million25 million

Soda King  3 million2.5 million

Market share12.5%10%

Average budgeted contribution margin per unit = $2.108  ($5,270,000 ÷ 2,500,000)

Solution Exhibit 14-25 presents the sales-quantity variance, market-size variance, and market-share variance for 2003.

ActualActualBudgetedBudgeted contribution

Market-share=    market size    ×market    –  market×margin per composite

   variancein units share  shareunit for budgeted mix

= 24,000,000 × (0.125 – 0.10) × $2.108

= 24,000,000 × .025 × $2.108

= $1,264,800 F

Actual BudgetedBudgetedBudgeted contribution

Market-size=    market size    –market size×  market×margin per composite

   variancein units   in units   shareunit for budgeted mix

=   (24,000,000 – 25,000,000) × 0.10 × $2.108

=   – 1,000,000 × 0.10 × $2.108

=   210,800 U

The market share variance is favorable because the actual 12.5% market share was higher than the budgeted 10% market share. The market size variance is unfavorable because the market size decreased 4% [(25,000,000 – 24,000,000) ÷ 25,000,000].

While the overall total market size declined (from 25 million to 24 million), the increase in market share meant a favorable sales-quantity variance.

Sales-Quantity Variance

$1,054,000 F

Market-share varianceMarket-size variance

$1,264,800 F$210,800 U

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