Market-share and ior vice president of marketing prepared his budget at the begi
ID: 348513 • Letter: M
Question
Market-share and ior vice president of marketing prepared his budget at the beginning of the third quarter assuming a 25% market share based on total sales The total handheld organizer market was estimated by Foolinstead Research to reach sales of 400,000 units worldwide in the third quarter. However, actual sales in the third quarter were 500,000 units. 8 market-size variances (continuation of 16-27). Aussie Infonautics' sen- REQUIRED 1. Calculate the market-share and market-size variances for Aussie Infonautics in the third quarter of 2013 (calculate all variances in terms of contribution margins) 2. Explain what happened based on the market-share and market-size variances 3. Calculate the actual market size, in units, that would have led to no market-size variance (again using budgeted contribution margin per unit). Use this market-size figure to calcu- late the actual market share that would have led to a zero market-share variance.Explanation / Answer
The question is a continuation of another question. Some of the data points are missing. I am sharing below the steps to solve the question.
Answer 1)
Market size variance = (Actual market size - Budgeted market size) * Budgeted market share * budgeted contribution margin per unit (assumed = $50)
= (500000-400000) * 0.25*50 = $ 1250000
Market Share variance = (Actual market share - Budgeted market share) * Actual market size * budgeted contribution margin per unit (assumed = $50)
= (0.20 - 0.25) * 500000*50 = ($ 1250000)
Note - You had budgeted 25% as market share and assuming that you plan to produce 25% of forecast i.e. 100,000 units. However, new market size is 500,000, So you will be only able to sell 100,000 i.e. 20% of market size.
b) The market size variance caused gross profits to increase by 1250000 and market share variance caused gross profits to decline by the same number.
c) For this we need to know the actual facts and figures of the case. I am sharing the formula below using which actual market size that would have led to no market size variance is
Market size variance = (Actual market size (M=?) - Budgeted market size) * Budgeted market share * budgeted contribution margin per unit
Now, Market size variance is zero and M =? that we need to find.
Once we get the actual market share by dividing actual sales / this calculated market size, we can calculate actual market share for zero-variance by:
Market Share variance = (Actual market share - Budgeted market share) * Actual market size * budgeted contribution margin per unit
= 0 = (Actual Market Share - 0.25) * Actual market size (calculated in previous step) * budgeted contribution margin per unit