Question

Calculate Market Size and Market share Variances

00 Sales Volume x Std CM/unit A UUUU Example 1: A company producing decaf drinks has noted slump in market due to public being more health conscious lately. In the past, the company has always had a market share of around 5% in the local market. The total market volumes recorded by the department of trade and industry last year was 5 million units, which has recently shown a slump of nearly 10%. The following are extracted from financial statements: Budgeted volume=250,000 units Budgeted selling price= $10/unit Budgeted variable costs= $4/unit Actual volume=240,000 units Actual selling price= $9/unit Calculate:

Answer 1

Market size reflects change in market share based on profitability assuming that market share remains the same. Market share variance reflects change in market share of company assuming the profitability remain same.

Budgeted parts are based on past data. The given 5 million units is budgeted market share which slumped to 4.5 million this year which is actual.

Current market size = 5 ( 1 – 0.1 ) = 4.5 million

	Actual	Budgeted
Market size (a)	4500,000	5000,000
Market share (b)	240,000	250,000
Market share % (b/a)	5.33%	5%

Budgeted contribution per unit = 10-4 = $ 6 per unit

Market size variance

= (Actual market size in units – Budgeted market size in units) X Budgeted market share X Budgeted contribution margin per unit

=( 240,000 – 250,000 ) X 5 % X 6

= $ 3000 U

Market share variance

= actual market size in units ( actual market share – budgeted market share) X Budgeted contribution margin per unit

= 240,000 ( 0.0533333 – 0.05) X 6

= $ 4800 F