Question

Bazinga Ltd. makes 2 products, Aces and Bells.  Data for the most recent year is as follows:

Budget Data
Product	Selling price per unit	Variable cost per unit	CM per unit	Sales volume in units	Sales mix (based on units)	Total Contribution Margin
Aces	10.00	2.00	8.00	123,000	61.50%	984,000
Bells	15.00	10.00	5.00	77,000	38.50%	385,000
				200,000		1,369,000
Actual Data
Product	Selling price per unit	Variable cost per unit	CM per unit	Sales volume in units	Sales mix (based on units)	Total Contribution Margin
Aces	11.00	2.50	8.50	115,000	63.89%	977,500
Bells	14.50	10.00	4.50	65,000	36.11%	292,500
				180,000		1,270,000

Product	Actual Market size in units	Budgeted Market Size in Units
Aces	200,000	210,000
Bells	100,000	90,000

Required:

Calculate the following variances:

1. Sales Mix Contribution Margin Variance
2. Sales Quantity Contribution Margin Variance
3. Market Share Variance
4. Market Size Contribution Variance
5. What conclusion can you make about the sales during the year?

Answer 1

Answer 2

To calculate the variances, we first need to calculate the following:

Budgeted Total Contribution Margin:

Aces: 123,000 units x $8.00 = $984,000 Bells: 77,000 units x $5.00 = $385,000 Total: $1,369,000

Actual Total Contribution Margin:

Aces: 115,000 units x $8.50 = $977,500 Bells: 65,000 units x $4.50 = $292,500 Total: $1,270,000

Sales Mix Contribution Margin Variance:

Budgeted Contribution Margin - Actual Contribution Margin = $1,369,000 - $1,270,000 = $99,000

Since the budgeted sales mix for Aces was 61.50% and the actual sales mix was 63.89%, this indicates that Aces sold better than expected. However, since the budgeted sales mix for Bells was 38.50% and the actual sales mix was 36.11%, this indicates that Bells sold worse than expected. The positive sales mix variance of $99,000 is due to the better than expected performance of Aces.

Sales Quantity Contribution Margin Variance:

(Budgeted Sales Volume x Budgeted Contribution Margin) - (Actual Sales Volume x Actual Contribution Margin) = [(200,000 x 10.00%) x $8.00] + [(100,000 x 15.00%) x $5.00] - [(115,000 x 10.00%) x $8.50] - [(65,000 x 15.00%) x $4.50] = $200,000 - $17,500 - $87,750 - $48,375 = $46,375

The negative sales quantity variance of $46,375 indicates that the actual sales volume was lower than expected.

Market Share Variance:

(Budgeted Sales Mix - Actual Sales Mix) x Actual Market Size x Actual Contribution Margin = [(61.50% - 63.89%) x 200,000 x $8.00] + [(38.50% - 36.11%) x 100,000 x $5.00] = -$25,360

The negative market share variance of $25,360 indicates that the actual sales mix was different than the budgeted sales mix, and the actual market size was also different than the budgeted market size.

Market Size Contribution Variance:

(Budgeted Market Size - Actual Market Size) x Budgeted Contribution Margin = [(210,000 - 200,000) x 10.00% x $8.00] + [(90,000 - 100,000) x 15.00% x $5.00] = $16,000 - $7,500 = $8,500

The positive market size contribution variance of $8,500 indicates that the actual market size was smaller than expected, but the actual contribution margin was higher than expected.

Conclusion:

Overall, the sales during the year were mixed. Aces performed better than expected, but Bells performed worse than expected. The actual sales volume was lower than expected, and the actual market size was also smaller than expected. However, the actual contribution margin was higher than expected.