Page 437 - PM Integrated Workbook 2018-19

Answers

Example 7

Hudson has a sales budget of 400,000 units for the coming year based on
20% of the total market. On each unit, Hudson makes a profit of $3. Actual
sales for the year were 450,000, but industry reports showed that the total
market value had been 2.2 million.

(a) Find the traditional sales volume variance

Traditional sales volume variance

= (actual units sold – budgeted sales) × standard profit per unit

= 450,000 – 400, 000 × $3 = $150,000

(b) Split this into planning and operational variances (market size and
market share). Comment on your results.

The revised (ex-post) budget would show that Hudson Ltd should expect
to sell 20% of 2.2 million units = 440,000 units.

Original sales × standard margin = 400,000 × $3 = $1,200,000
Market size = $120,000 F

Revised sales × standard margin = 440,000 × $3 = $1,320,000
Market share $30,000 F

Actual sales × standard margin = 450,000 × $3 = $1,350,000

Total sales volume variance = $120,000 F + $30,000 F = $150,000 F

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