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The sales department of HB is expected to sell the 75,000 litres of perfume at a cost per litre of € 20. At the end of the month, actual sales revenues are € 1,080,000, and the sales volume is 60,000 litres. While the sales department acknowledges that the volume fell short of the target, it claims that it actually did a decent job: it points to market research saying that the total market volume for the month was 340,000 litres instead of the budgeted 400,000 litres: ‘Actually, we did quite ok in a declining market’.
Calculate the sales price variance (flexible budget variance) and the sales volume variance.
The sales price variance is and the sales volume variance is
Calculate the market share variance and the market size variance
The market share variance is and the market size variance is .
Comment on the sales department’s remark. Did they do a good job? Why?
We got a lower price, this leads to an unfavorable variance.
We sold a lower volume, this also leads to an unfavorable variance.
In a declining market, we still lost market share.
So although the market development was not favorable, the sales department did even worse than the market.