Alternative Variance Calculations
An alternative to the variance calculations shown in Appendix 11A is to split the Sales
Quantity variance into two components: (a) Market Share and (b) Market Volume. The
rationale is that the Sales Quantity variance is caused by differences between budgeted
and actual market share and between the planned and actual size of the total market for
the products being sold. Although the labels for Market Share and Market Volume are the
same as Appendix 11A, the formulae shown below for calculating them are not.
Sales Quantity Variance
Recall that the Sales Quantity Variance formula per Appendix 11A is:
([Actual sales quantity at anticipated sales mix – Anticipated sales quantity] x Budgeted
contribution margin per unit
Deluxe: ([16,000 x 10/15] – 10,000]) x ($60 - $24) = $24,000 F
Standard: ([16,000 x 5/15] – 5,000]) x ($30 - $15) = $ 5,000 F
$29,000 F
Market Share Variance
Market share variance = (Actual market size in units x [Actual market share% - Budgeted
market share %]) x Budgeted average contribution margin per unit.
(160,000* – ([16,000/160,000] – [15,000/160,000]) x $29** = $29,000 F
*75,000 (Deluxe) + 85,000 (Standard) = 160,000
**[$36 x 2/3 (Deluxe)] + [$15 x 1/3 (Standard)] = $29
Market Volume Variance
Market volume variance = ([Actual market size in units - Budgeted market size in units]
x Budgeted market share x Budgeted average contribution margin per unit)
([160,000 – 160,000] x (15,000/160,000)* x $29 = $0
*(10,000 + 5,000)/(70,000 + 90,000)
Summary
Using the above approach:
Sales quantity variance = Market share variance + Market volume variance
$29,000 F = $29,000F + $0