Chapter 16 Revenues, Sales Variances, and Customer Profitability Analysis

1. Chapter 16Revenues, Sales Variances, and Customer Profitability Analysis

2. Revenue Allocation • Revenue allocation occurs when revenues, related but not traceable to individual products (services or customers), are assigned to individual products • a Bundled product is a package of two or more products or services, sold for a single price, each with their own stand-alone prices • Often called suite sales • Allocate revenues to products based on • selling prices or unit costs • physical units • stand-alone product revenues • incremental revenues Pages 599 - 600

3. Revenue Allocation – Stand Alone WordMaster $250 SpreadMaster $300 FinanceMaster $450 Suite price for all three products = $760 Allocation based on Stand-Alone Prices WordMaster $250 / $1,000 x $760 = $190 SpreadMaster $300 / $1,000 x $760 = 228 FinanceMaster $450 / $1,000 x $760 = 342 $760 Pages 600 - 601

4. Revenue Allocation - Incremental WordMaster $250 FinanceMaster $450 SpreadMaster $300 Suite price for all three products = $760 Allocation based on Incremental Prices * FinanceMaster $450 SpreadMaster 300 FinanceMaster ($760 - $450 - $300) 10 $760 * Assume primary product is Finance, then Spread, then Word Pages 600 - 601

5. Sales Mix Variance Sales Quantity Variance Market Size Variance Market Share Variance Sales Volume Variance Static Budget Variance Flexible Budget Variance Sales Volume Variance Sales Volume Variance = (actual unit sales - budgeted unit sales) x budgeted contribution margin per unit Pages 603 - 606

6. Sales-Mix and Sales-Quantity Variances Sales-mix variance Actual Actual Budgeted Budgeted = units of all x sales - sales x contribution products sold mix % mix % margin per unit Sales-quantity variance Actual Budgeted Budgeted Budgeted = units of all - units of all x sales x contribution products sold products sold mix % margin per unit Pages 606 - 608

7. Market-Share and Market-Size Variances Market-share variance Actual Actual Budgeted Budgeted average = market size x market - market x contribution in units share % share % margin per unit Market-size variance Actual Budgeted Budgeted Budgeted average = market size - market size x market x contribution in units in units share % margin per unit Pages 608 - 610

8. Customer Profitability Analysis Consider profitability of individual customers taking into account: • customer specific costs • distribution channel costs • customer support costs • corporate sustaining costs Look at customers in terms of • short-run and long-run profitability • likelihood of retention • growth potential • increases in overall demand from well-known customers • ability to learn from a customer Pages 611 - 616

9. Mix and Yield Variances for Inputs Mix variance Actual Budgeted Actual total Budgeted = input - input x inputs x price per mix % mix % used input unit Yield variance Actual total Budgeted total Budgeted Budgeted = units of - units of x input x price per input used inputs used mix % input unit Pages 620 - 623

10. Price Variance Efficiency Variance Mix Variance Yield Variance Mix and Yield Variances Static Budget Variance Flexible Budget Variance Sales Volume Variance Pages 620 - 623