Page 177 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes

Notes The sales margin quantity variance can be subdivided into the market size variance
and the market share variance.
The computations for these two variances are given below:
1. Market Size Variance = (Budgeted Market Share Percentage) ×Actual industry sales
volume in units – Budgeted industry sales volume in units)
× Budgeted Average contribution margin Per unit

2. Market Share Variance = (Actual market share percentage – Budgeted market share
percentage) × Actual industry sales volume in units ×
Budgeted Average Contribution margin per unit.
Illustration: Assume the following budgeted and sales actual data for a month in the example:
Budgeted Actual
Jug wine Premium wine Jug wine Premium wine
` ` ` `
Selling price per unit 5 16 5.50 15.50
Variable cost per unit 4 9 4.30 9.50
Contribution per unit 1 7 1.20 6.00
Sales in units 1200 400 1100 700

Budgeted fixed cost for the month ` 3,000 and actual fixed cost ` 3050
Assume the following further information:
Budgeted Actual
Total market for wine units 20,000 18,000

The company’s share of market 8% 10%
Calculate Sales Margin (Value) variance in detail and reconcile the operating income.
Solution:

Jug wine Premium wine Total
Static Flexible Actual Static Flexible Actual Static Flexible Actual
(master Budget (master Budget (master Budget
Budget) Budget) Budget)
Units sold 1200 1100 1100 400 700 700 1600 1800 1800
Sales in 6000 5500 6050 6400 11200 10850 12400 16700 16900
rupees
Variance 4800 4400 4730 3600 6300 6650 8400 10700 11380
costs
Contribution 1200 1100 1320 2800 4900 4200 4000 6000 5520
margin
Fixed costs 3000 3000 3050
Operating 1000 3000 2470
income

Average
1. Total Sales Margin (Value) Variance= Actual Margin – Budgeted Margin
= ` 5520 – ` 4000

= ` 1520 (F)

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