2 illustration the simple quadrant view of a

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Financial and Managerial Accounting Using Excel for Success
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Chapter 20 / Exercise 10
Financial and Managerial Accounting Using Excel for Success
Reeve/Warren
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2. Illustration The simple quadrant view of a hypothetical market is shown below. Clearly, the innovator that focuses on product differentiation has targeted quadrant 1, while the price leader has targeted quadrant 4. Selective DistributionStyleHighlyFadFunctionalMass DistributionB. SALES VARIANCES AND TARGET MARKET ANALYSIS Various types of sales variance analyses are valuable to a firm to evaluate the effectiveness of its identification of target markets and its strategies to capture those markets. The sales variance is comprised of various components, as briefly described below. 1. Sales Volume Variance The sales volume variance is a flexible budget variance that distills volume activity from other sales performance components. The sales volume concept can be refined to include analysis of sales mix, market share and selling price. The basic sales volume variance is as follows: =×ActualBudgetedSales volume varianceStandard contribution margin per unitsold unitssales units2. Sales Mix Variance The sales mix variance evaluates the impact of the company's departure from the planned mix of products anticipated by its budget. =××Budgeted productActual Budgeted contribution marginActual productSales mix variancesales mix ratiosales mix ratiosold unitsper unit of that product
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Financial and Managerial Accounting Using Excel for Success
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Chapter 20 / Exercise 10
Financial and Managerial Accounting Using Excel for Success
Reeve/Warren
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Becker CPA Review Business Environment & Concepts 5© 2009 DeVry/Becker Educational Development Corp. All rights reserved. B5-713. Sales Quantity Variance The sales quantity variance is a measure of the change in the number of actual sold units from those budgeted and can be expanded to include analysis of the anticipated size of the market and the share of the target market. =××Product sales Actual sold Budgeted salesBudgeted productBudgeted contribution marginquantity varianceunits of productunits of productsales mix ratioper unit of that producta. Market Size Variance The market size variance is a measure of the effect the size of the entire market for the product has on the contribution margin for the firm. (1) Interpretation and Use A firm increases its market size by capturing additional sales in existing markets or broadening its appeal to other target markets. (2) Strategic Risks Seeking other target markets is often a difficult and risky direction for management to make since it involves the decision to allocate new resources to new markets, even considering the fact that the potential to increase profits often far exceeds a similar effort in increasing market share in existing target markets. Firms risk declines in revenues and overcapacity if their efforts take place in a time of declining market size. =××Actual market BudgetedBudgeted contribution marginExpected marketMarket size variancesize (in units)size (in units)market shareper unit (weighted-average)b. Market Share Variance The market share variance measures the effect of a firm's market share on the firm's contribution margin.

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