1. © 2009 Pearson Prentice Hall. All rights reserved. Sales-Variance Analysis

2. © 2009 Pearson Prentice Hall. All rights reserved. Customer Revenues Price discounting is the reduction of selling prices to encourage increases in customer purchases Lower sales price is a tradeoff for larger sales volumes Discounts should be tracked by customer and salesperson

3. © 2009 Pearson Prentice Hall. All rights reserved. Customer Profitability Analysis Illustrated

4. © 2009 Pearson Prentice Hall. All rights reserved. Sales Variances Level 1: Static-budget variance – the difference between an actual result and the static-budgeted amount Level 2: Flexible-budget variance – the difference between an actual result and the flexible-budgeted amount Level 2: Sales-volume variance Level 3: Sales Quantity variance Level 3: Sales Mix variance

5. (c) 2009 Pearson Prentice Hall. All rights reserved. Sales-Mix Variance Measures shifts between selling more or less of higher or lower profitable products

6. © 2009 Pearson Prentice Hall. All rights reserved. Sales-Quantity Variance

7. © 2009 Pearson Prentice Hall. All rights reserved. Flexible-Budget and Sales-Volume Variances Illustrated

8. © 2009 Pearson Prentice Hall. All rights reserved. Sales-Mix and –Quantity Variances Illustrated

9. © 2009 Pearson Prentice Hall. All rights reserved. Market-Share Variance

10. © 2009 Pearson Prentice Hall. All rights reserved. Market-Size Variance

11. © 2009 Pearson Prentice Hall. All rights reserved. Market-Share and –Size Variances Illustrated

12. © 2009 Pearson Prentice Hall. All rights reserved. Market-Share and Market-Size Variances Limitation: reliable information on the actual size and share of various markets is not always available These are considered Level 4 variances (a decomposition of the Sales-Quantity variance

13. © 2009 Pearson Prentice Hall. All rights reserved. Sales Variances Summarized

14. © 2009 Pearson Prentice Hall. All rights reserved. 18-14 Analysis of Profit Related Variances 6 Sales price variance = (actual price – expected price) X Quantity sold Price Volume Variance = (Actual volume – Expected volume) X expected price

15. © 2009 Pearson Prentice Hall. All rights reserved. 18-15 Analysis of Profit Related Variances 6 Contribution Margin Variance = Annual contribution margin - Budgeted contribution margin Contribution margin volume variance = (Actual quantity sold – Budgeted quantity sold) X Budgeted average unit contribution margin

16. © 2009 Pearson Prentice Hall. All rights reserved. 18-16 Analysis of Profit Related Variances 6 Sales Mix Variance = [(Product 1 actual units – Product 1 budgeted units) X (Product 1 budgeted unit contribution margin – Budgeted average unit contribution margin] + [(Product 2 actual units – Product 2 budgeted units) X (Product 2 budgeted unit contribution margin – Budgeted average unit contribution margin]

17. © 2009 Pearson Prentice Hall. All rights reserved. 18-17 Analysis of Profit Related Variances 6 Market Share Variance = [(Actual market share percentage – Budgeted market share percentage) X (Actual industry sales in units)] X ( Budgeted average unit contribution margin) Market Size Variance = [(Actual industry sales in units – Budgeted industry sales in units) X (Budgeted market share percentage)] (Budgeted average unit contribution margin)