Presentation is loading. Please wait.

Presentation is loading. Please wait.

14 - 1 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Revenue, Customer- Profitability Analysis, and Sales-Variance.

Published by Modified over 9 years ago

Similar presentations

Presentation on theme: "14 - 1 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Revenue, Customer- Profitability Analysis, and Sales-Variance."— Presentation transcript:

1 14 - 1 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Revenue, Customer- Profitability Analysis, and Sales-Variance Analysis Chapter 14

2 14 - 2 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 1 Discuss why a company’s revenues can differ across customers purchasing the same product.

3 14 - 3 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Customer Revenue Analysis Example During the first six months of 2003, English Languages Institute expanded its market and sold 200 composition programs to two new customers in Mexico. Customer A is in Tijuana and customer B is in Guadalajara.

4 14 - 4 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Customer Revenue Analysis Example Customer AB Programs sold 140 60 List selling price $185 $185 Invoice price $175 $180 Total revenues$24,500$10,800 What explanation(s) can be given for these revenue differences?

5 14 - 5 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Customer Revenue Analysis Example 1. The volume of programs purchased 2. The magnitude of price discounting

6 14 - 6 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Customer Cost Analysis Example Assume that English Languages Institute has an activity-based costing system that focuses on customers rather than products. Activity AreaCost Driver and Rate Order taking$ 80 per purchase Order set up$100 per batch

7 14 - 7 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Customer Cost Analysis Example Customer A Customer B Number of: Purchase orders 7 2 Batches 7 2 What is the cost of servicing each customer?

8 14 - 8 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Customer Cost Analysis Example Customer A: Ordering:7 × $80/order=$ 560 Set-up:7 × $100/batch= 700 Total$1,260 English can use this information to persuade this customer to reduce usage of the ordering and setup cost drivers.

9 14 - 9 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Customer Cost Analysis Example Customer B: Ordering:2 × $80/order=$160 Setup:2 × $100/batch= 200 Total$360

10 14 - 10 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 2 Apply the concept of cost hierarchy to customer costing.

11 14 - 11 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Cost Hierarchy General Motors uses a seven-level cost hierarchy to analyze profitability. The aim of this cost hierarchy is to assign costs to the lowest level of the hierarchy at which they can be identified.

12 14 - 12 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Cost Hierarchy 1. Enterprise-related activities 2. Market-related activities 3. Channel-related activities 4. Customer-related activities 5. Order-related activities 6. Parts-related activities 7. Direct materials

13 14 - 13 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 3 Discuss why customer-profitability differs across customers.

14 14 - 14 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Customer-Profitability Profiles Which customer is more profitable, A or B? A B Revenues$24,500$10,800 Cost of good sold ($95 per unit) 13,300 5,700 Contribution margin $11,200$ 5,100 Other expenses 1,260 360 Operating income$ 9,940$ 4,740

15 14 - 15 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Customer-Profitability Profiles Customer A seems to be more profitable. However, customer B has a higher gross profit percentage. Customer A has a gross profit of 40.6% ($9,940 ÷ $24,500). Customer B has a gross profit of 43.9% ($4,740 ÷ $10,800).

16 14 - 16 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 4 Provide additional information about the sales-volume variance by calculating the sales-mix variance and the sales-quantity variance.

17 14 - 17 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Sales-Volume Variance Components The following information relates to English Languages Institute budget for the year 2003. Product Grammar Trans. Comp. Selling price per unit$259 $87$185 Variable cost 189 50 95 Contribution margin per unit$ 70 $37$ 90

18 14 - 18 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Sales-Volume Variance Components ProductGrammarTranslationComposition Cont. margin$70$37$90 × Units3,185980735 = Total$222,950$36,260$66,150 Sales mix65%20%15% Total budgeted contribution margin = $325,360

19 14 - 19 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Sales-Volume Variance Components ProductGrammarTranslationComposition Selling $/unit$255$85$185 Variable cost 180 45 95 Cont. margin per unit $ 75$40$ 90 The following are the actual results for English Languages for the year 2003.

20 14 - 20 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Sales-Volume Variance Components ProductGrammarTranslationComposition Cont. margin$75$40$90 × Units2,880990630 = Total$216,000$39,600$56,700 Sales mix64%22%14% Total actual contribution margin = $312,300

21 14 - 21 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Static-Budget Variance Static- Static- Actual budget budget Product results amount variance Grammar$216,000$222,950$ 6,950 U Translation 39,600 36,260 3,340 F Composition 56,700 66,150 9,450 U Total$312,300$325,360$13,060 U

22 14 - 22 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Flexible-Budget Variance Actual contribution Unit Actual Product margin/unit volume results Grammar$752,880$216,000 Translation$40 990$ 39,600 Composition$90 630$ 56,700

23 14 - 23 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Flexible-Budget Variance Budgeted Actual contribution unit Flexible Product margin/unit volume budget Grammar$702,880$201,600 Translation$37 990$ 36,630 Composition$90 630$ 56,700

24 14 - 24 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Flexible-Budget Variance Flexible-Flexible- Actual budget budget Product results amount variance Grammar$216,000$201,600$14,400 F Translation$39,600 $ 36,630$ 2,970 F Composition$56,700 $ 56,700 0 Total flexible-budget variance$17,370 F

25 14 - 25 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Sales-Volume Variance Budgeted contribution Product Actual Budget margin Grammar(2,880 – 3,185) × $70 =$21,350 U Translation (990 – 980) × $37 = 370 F Composition (630 – 735) × $90 = 9,450 U Total sales-volume variance$30,430 U

26 14 - 26 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Sales-Mix Variance Sales-mix variance Actual units of all products sold Actual sales-mix percentage – Budgeted sales-mix percentage Budgeted contribution margin per unit = × ×

27 14 - 27 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Sales-Mix Variance Grammar: 4,500(0.64 – 0.65) × $70 = $3,150 U Translation: 4,500(0.22 – 0.20) × $37 = $3,330 F Composition: 4,500(0.14 – 0.15) × $90 = $4,050 U Total sales-mix variance = $3,870 U

28 14 - 28 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Sales-Quantity Variance Sales-quantity variance Actual units of all products sold – Budgeted units of all products sold Budgeted sales-mix percentage Budgeted contribution margin per unit = × ×

29 14 - 29 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Sales-Quantity Variance Grammar: (4,500 – 4,900) × 0.65 × $70= $18,200 U Translation: (4,500 – 4,900) × 0.20 × $37= $ 2,960 U Composition: (4,500 – 4,900) × 0.15 × $90= $ 5,400 U Total sales-quantity variance= $26,560 U

30 14 - 30 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Learning Objective 5 Provide additional information about the sales-quantity variance by calculating the market-share variance and the market-size variance.

31 14 - 31 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Market-Share Variance Example Assume that English Languages Institute derives its total unit sales budget for 2003 from a management estimate of a 20% market share and a total industry sales forecast by Desert Services of 24,500 units in the region. In 2003, Desert Services reported actual industry sales of 28,125 units.

32 14 - 32 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Market-Share Variance Example What is English’s actual market share? 4,500 ÷ 28,125 = 0.16 Budgeted total contribution margin is $325,360. Budgeted number of units is 4,900. What is the budgeted average contribution margin per unit? $325,360 ÷ 4,900 = $66.40

33 14 - 33 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Market-Share Variance Example What is the market-share variance? Actual market size in units Actual market share – Budgeted market share Budgeted contribution margin per composite unit for budgeted mix = × × 28,125(0.16 – 0.20) × $66.40 = $74,700 U

34 14 - 34 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Market-Share Variance Example Actual Market Size × Actual Market Share × Budgeted Average Contribution Margin Per Unit 28,125 × 0.16 × $66.40 = $298,800 Actual Market Size × Budgeted Market Share × Budgeted Average Contribution Margin Per Unit 28,125 × 0.20 × $66.40 = $373,500 $373,500 – $298,800 = $74,700 U

35 14 - 35 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Market-Size Variance Example Market-size variance Actual market size in units – Budgeted market size in units Budgeted market share Budgeted contribution margin per composite unit for budgeted mix = × × (28,125 – 24,500) × 0.20 × $66.40 = $48,140 F

36 14 - 36 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Market-Size Variance Example Actual Market Size × Budgeted Market Share × Budgeted Average Contribution Margin Per Unit 28,125 × 0.20 × $66.40 = $373,500 Static Budget: Budgeted Market Size × Budgeted market share × Budgeted Average Contribution Margin Per Unit 24,500 × 0.20 × $66.40 = $325,360 $373,500 – $325,360 = $48,140 F

37 14 - 37 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Summary of Variances Static-Budget Variance 13,060 U Level 1 Level 2 Flexible-Budget Variance $17,370 F Sales-Volume Variance $30,430 U

38 14 - 38 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Summary of Variances Sales-Volume Variance $30,430 U Level 2 Level 3 Sales-Mix Variance $3,870 U Sales-Quantity Variance $26,560 U

39 14 - 39 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Summary of Variances Sales-Quantity Variance $26,560 U Level 3 Level 4 Market-Share Variance $74,700 U Market-Size Variance $48,140 F

40 14 - 40 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster End of Chapter 14

Download ppt "14 - 1 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Revenue, Customer- Profitability Analysis, and Sales-Variance."

Similar presentations

CHAPTER 14 Cost Allocation, Customer Profitability Analysis, and

CHAPTER 14 Cost Allocation, Customer Profitability Analysis, and
CHAPTER 14 Cost Allocation, Customer Profitability Analysis, and

CHAPTER 14 Cost Allocation, Customer Profitability Analysis, and
Chapter 14 Measuring and Assigning Costs for Income Statements

Chapter 14 Measuring and Assigning Costs for Income Statements
15 - 1 ©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Chapter 15 Overhead Application: Variable.

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Chapter 15 Overhead Application: Variable.
Management Accounting ACCT 481 Michael Dimond. Michael Dimond School of Business Administration Managing & Allocating Costs Pricing Decisions Cost Management.

Management Accounting ACCT 481 Michael Dimond. Michael Dimond School of Business Administration Managing & Allocating Costs Pricing Decisions Cost Management.
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Chapter 23 1.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall. Chapter 23 1.
7 - 1 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Flexible Budgets, Variances, and Management Control: I Budgeting.

7 - 1 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Flexible Budgets, Variances, and Management Control: I Budgeting.
Cost-Volume-Profit Analysis (Contribution Margin) CURL SURFBOARDS

Cost-Volume-Profit Analysis (Contribution Margin) CURL SURFBOARDS
2009 Foster School of Business Cost Accounting L.DuCharme 1 Sales-Variance Analysis Chapter 14.

2009 Foster School of Business Cost Accounting L.DuCharme 1 Sales-Variance Analysis Chapter 14.
©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 8 - 1 Introduction.

©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler Introduction.
Cost Accounting Horngreen, Datar, Foster Flexible Budgets, Variances, and Management Control: I Session 7.

Cost Accounting Horngreen, Datar, Foster Flexible Budgets, Variances, and Management Control: I Session 7.
7 - 1 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Flexible Budgets, Variances, and Management Control: I Chapter.

7 - 1 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Flexible Budgets, Variances, and Management Control: I Chapter.
©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 13 - 1 Introduction.

©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler Introduction.
Customer-Profitability Analysis and Sales-Variance Analysis

Customer-Profitability Analysis and Sales-Variance Analysis
14 - 1 Cost Allocation, Customer- Profitability Analysis, and Sales-Variance Analysis Chapter 14.

Cost Allocation, Customer- Profitability Analysis, and Sales-Variance Analysis Chapter 14.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 2 - 1 An Introduction to Cost Terms and Purposes Chapter 2.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster An Introduction to Cost Terms and Purposes Chapter 2.
9 - 1 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Inventory Costing and Capacity Analysis Chapter 9.

9 - 1 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Inventory Costing and Capacity Analysis Chapter 9.
Contemporary Engineering Economics, 4 th edition, © 2007 Estimating Profit from Production Lecture No. 31 Chapter 8 Contemporary Engineering Economics.

Contemporary Engineering Economics, 4 th edition, © 2007 Estimating Profit from Production Lecture No. 31 Chapter 8 Contemporary Engineering Economics.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 1 Job Order Costing Chapter 4.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Job Order Costing Chapter 4.
14 - 1 ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Cost Allocation, Customer- Profitability Analysis, and Sales-Variance.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster Cost Allocation, Customer- Profitability Analysis, and Sales-Variance.

Similar presentations

Ads by Google