Page 176 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 8: Management Control through Variance Analysis

Notes
Example: Decrease in selling price coupled with favourable product quantity variances
may help in assessing the price elasticity of demand.
The computations of sales margin variance are given below:
1. Total Sales Margin (Value) Variance: It is the difference between actual margin from sales
and budgeted margin (Profit).
2. Sales Margin Price Variance: (Budgeted Price – Actual Price) × Actual Quantity. The flexible
budget revenue variance is explained by changes in unit selling prices.

3. Sales Margin Volume Variance: Budgeted Margin per unit × difference between actual
quantity of sales and budgeted quantity of sales.
It can be measured by the difference between the flexible budget amounts and the static
(master) budget amounts, unit selling prices, unit variable costs and fixed costs are held
constant.

4. Sales Margin Mix Variance: It is that portion of sales margin volume variance which is due
to the difference between the quantities of actual sales mix and the budgeted sales mix and
can be computed as below:
Sales Margin Mix Variance = (Actual Sales Qty. in Actual mix – Actual Sales Qty. in
Budgeted Mix)  Budgeted margin per unit for Individual
products
It is basically the difference between the amount of contribution margin in the flexible
budget based on actual sales volume at actual mix and that amount in the flexible budget
based on actual sales volume at budgeted mix.
5. Sales Margin Quantity Variance: Budget Average Margin Per Unit  (Actual Total
Quantity – Budgeted Total Quantity)
It is the difference between the amount of contribution margin in the flexible budget
based on actual sales volume and budgeted sales mix and that amount in static (master
budget).

!
Caution Budgeted selling prices and budgeted unit variable costs are held constant.

Self Assessment

Fill in the blanks:
3. There are two distinct methods of computing and presenting sales variance,
(1)……………………. (2) Sales margin (Profit) method.
4. ………………………………=Budget Average Margin Per Unit × (Actual Total Quantity –
Budgeted Total Quantity)
8.3 Market Size and Market Share Variances

The performance of the company is also affected by overall demand for the industry products
and the company’s ability to maintain its share of the market. Statistics for some industries are
readily available and so the company can easily monitor its market share.

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