Cost Accounting (14th Edition)

Market-Share Variance
TERMS TO LEARN 249
The market-share variance is the difference in budgeted contribution margin for actual market size in units caused
solely by actual market share being different from budgeted market share. The formula for computing the marketshare
variance is as follows:
Market-share
variance
=
Actual
market size
in units
= $80,000 U
Actual
* £ market -
share
Budgeted
market ≥ *
share
= 62,500 units * (0.16 - 0.20) * $32 per unit
Budgeted
contribution margin
per unit
Webb lost 4.0 market-share percentage points—from the 20% budgeted share to the actual share of 16%. The
$80,000 U market-share variance is the decline in contribution margin as a result of those lost sales.
Market-Size Variance
The market-size variance is the difference in budgeted contribution margin at budgeted market share caused solely by
actual market size in units being different from budgeted market size in units. The formula for computing the marketsize
variance is as follows:
Market-size
variance
Actual
= £ market -
size
= (62,500 units - 60,000 units) * 0.20 * $32 per unit
= $16,000 F
Budgeted
market ≥ *
size
Budgeted
market
share
*
Budgeted
contribution margin
per unit
The market-size variance is favorable because actual market size increased 4.17% [(62,500 – 60,000) ÷ 60,000 =
0.417, or 4.17%] compared to budgeted market size.
Managers should probe the reasons for the market-size and market-share variances for April 2011. Is the
$16,000 F market-size variance because of an increase in market size that can be expected to continue in the future?
If yes, Webb has much to gain by attaining or exceeding its budgeted 20% market share. Was the $80,000 unfavorable
market-share variance because of competitors providing better offerings or greater value to customers? We saw
earlier that Webb was able to charge a higher selling price than expected, resulting in a favorable selling-price variance.
However, competitors introduced new styles of jackets that stimulated market demand and enabled them to
charge higher prices than Webb. Webb’s products also experienced quality-control problems that were the subject of
negative media coverage, leading to a significant drop in market share, even as overall industry sales were growing.
Some companies place more emphasis on the market-share variance than the market-size variance when evaluating
their managers. That’s because they believe the market-size variance is influenced by economy-wide factors and
shifts in consumer preferences that are outside the managers’ control, whereas the market-share variance measures
how well managers performed relative to their peers.
Be cautious when computing the market-size variance and the market-share variance. Reliable information on market
size and market share is available for some, but not all, industries. The automobile, computer, and television industries are
cases in which market-size and market-share statistics are widely available. In other industries, such as management consulting
and personal financial planning, information about market size and market share is far less reliable.
Terms to Learn
This chapter and the Glossary at the end of the book contain definitions of the following important terms:
benchmarking (p. 244)
budgeted performance (p. 227)
effectiveness (p. 243)
efficiency (p. 243)
efficiency variance (p. 236)
favorable variance (p. 229)
flexible budget (p. 230)
flexible-budget variance (p. 231)
input-price variance (p. 236)
management by exception (p. 227)
market-share variance (p. 249)
market-size variance (p. 249)
price variance (p. 236)
rate variance (p. 236)
sales-volume variance (p. 231)
selling-price variance (p. 233)
standard (p. 234)
standard cost (p. 235)