Cost Accounting (14th Edition)

522 CHAPTER 14 COST ALLOCATION, CUSTOMER-PROFITABILITY ANALYSIS, AND SALES-VARIANCE ANALYSIS
Exhibit 14-10 Sales-Mix and Sales-Quantity Variance Analysis of Spring Distribution for June 2012
Flexible Budget:
Static Budget:
Actual Units of Actual Units of Budgeted Units of
All Products Sold All Products Sold All Products Sold
Actual Sales Mix Budgeted Sales Mix Budgeted Sales Mix
Budgeted Contribution Budgeted Contribution Budgeted Contribution
Margin per Unit Margin per Unit Margin per Unit
(1) (2) (3)
Wholesale 900,000 0.84 $0.49 = $370,440 900,000 0.80 $0.49 = $352,800 890,000 0.80 $0.49 = $348,880
Retail 900,000 0.16 $0.98 = 141,120 900,000 0.20 $0.98 = 176,400 890,000 0.20 $0.98 = 174,440
$511,560 $529,200 $523,320
Level 3
Level 2
$17,640 U $5,880 F
Sales-mix variance
Sales-quantity variance
$11,760 U
Sales-volume variance
F = favorable effect on operating income; U = unfavorable effect on operating income.
be sold at budgeted mix). The formula and computations (using data from p. 519) are
as follows:
:
Budgeted
Sales-Mix
Percentages :
Budgeted
Contribution
Margin per Unit
Sales-
Quantity
Variance
Wholesale (900,000 units – 890,000 units) * 0.80 * $0.49 per unit = $3,920 F
Retail (900,000 units – 890,000 units) * 0.20 * $0.98 per unit = ƒ1,960 F
Total sales-quantity variance
$5,880 F
Decision
Point
What are the two
components of the
sales-volume
variance?
This variance is favorable when actual units of all products sold exceed budgeted units of
all products sold. Spring sold 10,000 more cases than were budgeted, resulting in a
$5,880 F sales-quantity variance (also equal to budgeted contribution margin per composite
unit for the budgeted sales mix times additional cases sold, $0.5880 * 10,000).
Managers would want to probe the reasons for the increase in sales. Did higher sales
come as a result of a competitor’s distribution problems? Better customer service? Or
growth in the overall market? Additional insight into the causes of the sales-quantity variance
can be gained by analyzing changes in Spring’s share of the total industry market and
in the size of that market. The sales-quantity variance can be decomposed into marketshare
and market-size variances, as illustrated in the appendix to Chapter 7. 9
Exhibit 14-11 presents an overview of the sales-mix and sales-quantity variances for
the Spring example. The sales-mix variance and sales-quantity variance can also be calculated
in a multiproduct company, in which each individual product has a different contribution
margin per unit. The Problem for Self-Study takes you through such a setting,
and also demonstrates the link between these sales variances and the market-share and
market-size variances studied earlier. The appendix to this chapter describes mix and
quantity variances for production inputs.
9 Recall that the market-share and market-size variances in the appendix to Chapter 7 (pp. 248–249) were computed for Webb
Company, which sold a single product (jackets) using a single distribution channel. The calculation of these variances is virtually
unaffected when multiple distribution channels exist, as in the Spring example. The only change required is to replace
the phrase “Budgeted Contribution Margin per Unit” in the market-share and market-size variance formulas with “Budgeted
Contribution Margin per Composite Unit for Budgeted Sales Mix” (which equals $0.5880 in the Spring example). For additional
details and an illustration, see the Problem for Self-Study for this chapter.