Chap 016
Chap 016
Chap 016
CHAPTER 16
OPERATIONAL PERFORMANCE MEASUREMENT: FURTHER
ANALYSIS OF PRODUCTIVITY AND SALES
QUESTIONS
16-1 Productivity is the ratio of output to input. It is a measure of the amount of output
produced per unit or per dollar of input.
16-2 To be a successful low cost provider in its industry a firm needs to be able to
manufacture the product using fewer resources - materials, labors, or other
resources - than its competitors. Improving productivity is the best strategy to
attain more products or services with fewer resources.
16-3 Two of the most often used criteria for assessing productivity and their
advantages and disadvantages are:
1. Prior year’s productivity
Advantages:
Data readily available
Facilitating monitoring of continuous improvements
Disadvantages:
Difficult to assess adequacy of productivity improvements
Changes in productivities from one year to the next may be a result of
several factors. The changes might be a result of changes in operating
factors such as new equipment, product design, or technology.
Disadvantages:
The standard might be too high and can be frustrating to workers.
Difficult to obtain proper data.
The benchmark may be inappropriate or not completely comparable for
the operation.
16-4 Operational productivity is the conversion ratio of an input resource to the output.
It is a physical measure on the unit of output produced from one unit of a
resource.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
Financial productivity measures the relationship between the output and the cost
of one or more of the input resources. It is a measure of the unit of output or the
sales values of output produced per dollar of one or more resources.
16-5 Partial productivity is a productivity measure that focuses only on the relationship
between the amount of one input and the output attained. Both the input
(denominator) and the output (numerator) can be either in unit or in dollar
amount.
Total productivity measures the relationship between the output and the total
cost of all the required input resources to produce the output. The output
(numerator) can be in unit or sales value of the output manufactured. However,
the input (denominator) is in dollar amount (cost of the input resources).
16-6 Financial productivity contains more information only in the sense that it
facilitates comparisons of different resources.
A financial productivity, however, can be confusing or less useful to production
departments because it includes the cost of resources in computing productivity.
The costs of resources are usually beyond the control of the production, different
cost may be measured differently, or cost of the same resource may be
determined differently in different periods. As a result, differences in financial
productivities might be a result of factors other than improved or deteriorated
productivities in using one or more production resources.
16-7 To say that a total productivity measure encompasses all partial productivity
measures is a misnomer. A total productivity measure may not examine the same
aspects of an operation as a partial productivity measure does. Information
revealed by a total productivity measure cannot be gleaned by examining all the
partial productivity measures for the same operation.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-11 (b). (a) is false because a higher productivity would be reflected by a higher, not
lower, partial productivity ratio. (c) is false because an operational partial
productivity measures only in physical unit. (d) is false because a partial
productivity measures the productivity of one, not multiple, input resource.
16-12 Measures for assessing marketing effectiveness include market share, market
size, selling price, sales mix, and sales quantity variances.
16-13 The components of sales variance include selling price and sales volume
variances. A sales volume variance is the total of sales quantity and sales mix
variances. A sales quantity variance can be further separated into market share
and market size variances.
16-14 A selling price variance measures the effects of deviations in actual selling prices
from the budgeted selling prices on operating results, including effects on
contribution margins and operating income. A sales volume variance measures
the effects on operating results, including effects on contribution margins and
operating income, when the number of units of one or more products sold differs
from the budgeted units of the product in the master budget of the period.
16-15 A sales volume variance is the difference between the flexible budget for the
units sold during a period and the budgeted units in the master budget of the
period. For a firm with multiple products the sales volume variance can be the
result of both sales mix and sales quantity variances. The sales volume variance
also is the sales quantity variance for a firm with only a single product.
The sales quantity variance of a firm with multiple products measures only effects
of changes in units sold from the number of units in the master budget of the
period; it does not include effects of deviations in the mixture of products sold
from the budgeted mix of the products.
However, the sales volume variance is the same as the sales quantity variance
for firms with only a single product.
16-16 This statement is not always true. A multi-product firm can still have an
unfavorable sales volume variance even if it sold more units than the budgeted
amount. The firm can have an unfavorable sales volume variance if it sells more
of less-profitable products and less of more-profitable products. Also, the sales
volume variance can be computed from a prior-to current period analysis as well
as a comparison to the master budget.
16-17 Selling price and sales volume variances are the two major components that
account for the difference between the total sales of a period and the total sales
in the master budget for the period. Sales mix and sales quantity variances are
detailed components of a sales volume variance.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-18 A market size variance measures the effect of changes in the size of a product’s
total market on a firm’s total contribution margin or operating income. A market
share variance examines the effect of changes in the firm’s shares of the total
market on its total contribution margin or operating income.
16-19 A firm benefits from a favorable sales quantity variance only if there are no
adverse changes in selling prices or sales mix variances. A favorable sales
quantity variance may not be beneficial to the firm if the firm lowered its selling
prices or sold more of low-priced, low-margin and less of high-priced, high-
margin products.
An increase in the total market size often leads to a favorable sales
quantity variance. Strategically, the favorable sales quantity variance may not be
favorable to the firm if the firm has an unfavorable market share variance.
However, a firm can have a favorable market size variance and an
unfavorable sales quantity variance if the firm sold fewer total units than the
number of units budgeted for the period in a period that the total market
increased. Conversely, the market size variance of a firm can be unfavorable
because the total market contracted and yet the firm experienced a favorable
sales quantity variance from selling more units than the number of units
budgeted for the period.
Relationships between a market share variance and a sales quantity
variance can be in either direction. A firm can have a favorable sales quantity
variance and an unfavorable market share variance when the increase in the
number of units sold is less than the proportional to the increase of the total
market. The sales quantity variance would be unfavorable if a firm sold fewer
units than the budgeted units although the firm experienced a favorable market
share variance when the decrease in the total number of units was less than the
decrease in the total market.
16-20 A sales volume variance can be divided into sales quantity and sales mix
variances. A sales quantity variance can be further divided into market size and
market share variances.
16-21 A firm can increase its earnings through reducing expenses, even if it sold fewer
units – earnings increased with lower sales.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
BRIEF EXERCISES
16-22
d. First, calculate the Sales Mix Ratios:
Actual Budget
Quantity Ratio Quantity Ratio
R66 1,000 .5 1,200 .75
R100 1,000 .5 400 .25
Total 2,000 1 1,600 1.0
16-23
c. R100 sales mix variance: (.5 - .25) x 2,000 x $70 = $35,000 F
16-24
e. Total sales volume variance:
R66: (1,000 - 1,200) x $10 = $ 2,000 U
R100 (1,000 - 400) x $70 = 42,000 F
Total $40,000 F
16-25
d.
Market share:
Actual: 3,000 / 100,000 = 3%
Budget: 1,600 / 32,000 = 5%
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-26
d. Market size variance: (100,000 - 32,000) x 5% x $25 =
$85,000 F
16-27
a. Sales volume variance: (3,000 - 1,600) x $25 = $35,000 F
16-28
c.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
EXERCISES
2. Total productivity:
2009 2010
(1) Output 400,000 486,000
Total cost:
Direct materials cost $540,000 $562,500
Direct labor cost 260,000 337,500
(2) Total cost $800,000 $900,000
(3) Total productivity (1) / (2) 0.5000 0.5400
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
3. The direct labor productivity per direct labor dollar decreased from
1.5385 units of output in 2009 to 1.44 in 2010. The direct materials
productivity, however, improved from manufacturing 0.7407 unit of
output per direct materials dollar in 2009 to 0.864 in 2010. The
decision to increase direct materials productivity (reduce direct
materials waste) at the expense of direct labor productivity is the right
decision. The total productivity improved from 0.5 for each dollar of the
prime cost to 0.54 per dollar.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-33 Sales Volume, Sales Quantity, and Sales Mix Variances (30 min)
1. Sales Mix
Total Seats Budgeted Sales Actual Sales
Available % Quantity Mix % Quantity Mix
Center 2,000 x .8 = 1,600 .2500 .95 1,900 .3028
Side 2,500 x .9 = 2,250 .3516 .85 2,125 .3386
Balcony 3,000 x .85 = 2,550 .3984 .75 2,250 .3586
Total 6,400 1.00 6,275 1.00
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
In the longer term, a car’s success in the market is determined by its
acceptance by the customer, not productivity. This means attention
to quality and design. The car must satisfy the customers’
expectations for quality, functionality, performance, and appearance.
Productivity is a key measure of a firms’ ability to generate short and
long-term profits, but those profits will not be forthcoming if the
customers are not attracted to the firm’s products.
The key role for productivity is to provide, over the long term, the
resources that are necessary for the automaker to invest in product
design, customer service, and quality. Productivity can provide these
resources by reducing the amount of time and dollars required in
manufacturing, thus making these funds available for other purposes.
As noted in chapter 17, the cost of quality can be quite high, when
warranty costs and rework costs are considered. Thus, the savings
from productivity should be considered within the context of the cost
of quality
The Toyota Production System is a good model of a system that is
designed to achieve both quality and productivity
Useful reading on this matter: Dan Slater, “In the Race for Success,
Quality is More Important than Productivity,” Manufacturing & Technology
News (www.manufacturingnews.com/news/editorials/slater.html ). See
also, Matthew Boyle, “Cutting Costs Without Cutting Jobs,” Business
Week, March 9, 2009, p 55.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
This question is intended for class discussion. Answers are likely to vary.
Here are some points that could be brought up in the discussion.
It is clear from the BLS predictions and preliminary quarterly measures for
2008 that the rate of productivity increase has fallen from the levels of the
prior few years. Some would argue that the very high rates in 2002 and
the few years thereafter were the result of significant belt-tightening by
firms in reaction to the market downturn of 2000-2001. The laid-off workers
were rehired only after businesses were comfortable about the growth in
the economy. Some economists view this as a natural part of the business
cycle.
A key question is how the current (late 2008) economic downturn will affect
hiring and employment levels. If the period of 2000-2001 is a guide,
significant employment reductions will have the affect of boosting
productivity to some degree.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-18
Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
3. The mix and quantity variances for each product are shown below;
note that the total of the sales mix and quantity variance equals the volume
variance
16-19
Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
PROBLEMS
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-40 (continued-1)
1.
2.
Direct material productivity deteriorated from .005387 in 2009 to .004006
in 2010. Direct labor improved from .047619 in 2009 to .059524 in 2010.
3.
The partial financial productivity ratios are calculated and compared in the
speadsheet above.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-23
Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
2010 2009
Sales 18,000 x $40 = $720,000 15,000 x $40 =$600,000
Variable cost of sales:
Materials 12,600 x $10 = $126,000 12,000 x $8 = $96,000
Labor 5,000 x $25 = 125,000 6,000 x $20 = 120,000
Power 2,000 x $2 = 4,000 1,000 x $2 = 2,000
Total variable costs of sales $255,000 $218,000
Contribution margin $465,000 $382,000
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
6. Productivity for both direct materials and direct labor improved in 2010.
The percentages of improvements in productivity are 11.43
(=.017857/.15625) and 35.2 (=.044/.125) for direct materials and
direct labor, respectively, of the 2009 productivity. However, cost
increases in direct materials and direct labor reduced the gains in
productivity on these two manufacturing factors.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
The calculations for the volume and selling price variances are shown
below.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
2. The sales mix and quantity variances based on contribution margin are
shown below.
3.
The sales strategy of decreasing price on the half-inch model was a
success in sales volume as sales units increased from 1,950 (.3 x 6,500)
to 3,600 (.5 x 7,200), an increase of 1,650 units. The selling price
variance was unfavorable because of the price change, a loss of $7,200
( = $2 price change x 3,600 units), but the sales volume variance for the
product, based on sales, was favorable, at $23,100 (=1,650 units x $14),
for a net positive effect on sales for the half-inch model of $23,100 -
$7,200 = $15,900.
The cost of the increased sales volume on variable costs was $9,900 =
1,650 x $6 for the increased sales of the half inch model. The reduced
variable costs because of the reduced sales of the one-inch model was
950 x $8 = $7,600.
The net effect on operating income of the sales strategies was
unfavorable at $2,400 = $89,800 - $87,400. The net improvement in
the half-inch model of $6,000 (=$13,200 - $7,200) was offset by the loss
of $8,400 (=$22,800-$14,400) on the one-inch model.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
2. Manufacturing Cost
MF LI
DM 300,000 x $ 8 = $2,400,000 200,000 x $ 8 = $1,600,000
DL 100,000 x $25 = 2,500,000 120,000 x $25 = 3,000,000
Total $4,900,000 $4,600,000
The financial partial productivity also shows mixed results. There is not a
clear advantage of one manufacturing alternative over the other.
3. Total Productivity
MF: 20,000 /$4,900,000 = 0.0041
LI: 20,000 /$4,600,000 = 0.0043
The total productivity shows that LI has a slight advantage over MF.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
2010:
Total actual direct labor hours: 20 x 20,000 = 400,000
Total standard direct labor hours: 21 x 20,000 = 420,000
16-30
Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
2010:
Total actual direct labor hours: 10 x 20,000 = 200,000
Total standard direct labor hours: 11 x 20,000 = 220,000
Recap:
Assembly Department Testing Department
2009 2010 2009 2010
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
4. Recap:
Operational partial productivity
2009 2010 Change
Assembly 0.04 0.05 0.01 F
Testing 0.0833 0.1 0.0167 F
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
1.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
1. The total productivity for the auto makers is shown below for the most
recent year at the time of the question was prepared, 2007. Also, while not
required, the results for 2005 are also shown for comparison. (Chrysler
LLP is excluded; since 2006 it is a private company and its financial
statements are not publicly available):
The objective of this question is to make the students aware that total
productivity can be at least approximated for a company the student is
interested in by obtaining basic financial data from the firm’s annual report.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
2. This requirement can be assigned for class discussion, and answers will
likely vary, depending on what portion of the financial statement is used
and which year’s annual report is used. The discussion here can focus on
some of the following (all these points are based on the 2007 and 2005
annual reports of GM and Ford)
Alternatively, the instructor can assign requirement 1 only, and then discuss
some of the observations about requirement 2, as noted below.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
Hamburger:
$2,240 U = (Actual Sales Mix Hamburger - 0.5) x 400,000 x $.56
Actual Sales Mix Hamburger - 0.5 = -0.01
Actual Sales Mix Hamburger = 0.49
Cheeseburger:
$4,800 U = (Actual Sales Mix Cheeseburger - 0.375) x 400,000 x $.8
Actual Sales Mix Cheeseburger - 0.375 = -0.015
Actual Sales Mix Cheeseburger = 0.36
Fishwich:
$1,600 F = (Actual Sales Mix Fishwich - 0.125) x 400,000 x $.16
Actual Sales Mix Fishwich - 0.125 = 0.025
Actual Sales Mix Fishwich = 0.15
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
2.
The reconciliation of the selling price, variable cost, and flexible cost
variances is as follows. The variances are in the solution shown in part 1.
A negative selling price variance means an unfavorable variance and a
positive is favorable. A negative variable cost variance means a favorable
variance and a positive is unfavorable.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-51 Flexible Budget, Sales Volume, Sales Mix, and Sales Quantity
Variances (30 min)
1.
The
solution is summarized below, and the calculations are shown above (a
negative is unfavorable and a positive is favorable):
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-45
Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16.51continued -1)
2.
MEMO
TO: Jerry Tanner, CEO
FROM: I M Student
RE: Tanner Company Variance Analysis
The firm has a favorable sales volume variance for H20 and a
unfavorable sales volume variance for G80. Tanner was able to sell
more units of H20 while the sales volume for G80 was less than the
budgeted level. The total sales quantity of the firm for both products has
increased. The increase, however, is from sales of H20. Both sales
quantity and sales mix variances support this conclusion. It appears that
the market is favorably receptive to H20 while somewhat unreceptive to
G80. This is true even though the price of H20 was greater than
budgeted. The firm should find out the reason for enjoying competitive
advantage in H20 and investigate the reasons for unfavorable sales
volumes of G80.
The flexible budget variance is unfavorable for G80 because of a
simultaneous decrease in sales price and increase in variable cost. The
reverse is true for H20 which enjoyed an increase in both selling price
and decrease in variable costs.
Please contact me for further discussion.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-53 Sales Volume, Sales Quantity, and Sales Mix Variances (20 min)
Sales Mix
Budget Actual
Flavor Quantity Mix Quantity Mix
Vanilla 250,000 .3125 180,000 .18750
Chocolate 300,000 .3750 270,000 .28125
Strawberry 200,000 .2500 330,000 .34375
Anchovy 50,000 .0625 180,000 .18750
Total 800,000 1.00 960,000 1.00
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
Recap
Sales Mix Sales Quantity Sales Volume
Flavor Variance Variance Variance
Vanilla $ 84,000 U + $ 35,000 F = $ 49,000 U
Chocolate 81,000 U + 54,000 F = 27,000 U
Strawberry 99,000 F + 44,000 F = 143,000 F
Anchovy 180,000 F + 15,000 F = 195,000 F
Total $114,000 F + $148,000 F = $262,000 F
2. Overall, the firm has enjoyed a good year. The total sales
substantially exceed the budgeted amount (20%). The increases in
sales could have been a result of the increase of the entire market
size for ice cream and other competing merchandises. In any event,
the firm still had an excellent operation by selling more units of the
flavors with high contribution margins. The favorable sales mix
variances in two of the flavors suggest that the two flavors with high
contribution margins account for all the increases in sales.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-54 Sales Volume, Sales Quantity, and Sales Mix Variances (20 min)
Budgeted Data
(100m x $240) + [100(1 - m) x $600] = $10,000 + $39,200
36,000m = $10,800
Budgeted mix for matinee: m = .3
Budgeted mix for evening show is 1 - .3 = .7
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
2.
The group performed more matinee shows than the budgeted
amount in both the number of shows and the relative proportion of
the total number of shows the group performed. The evening shows,
which offered a higher contribution margin per show than that of a
matinee, are less than the budgeted amount.
While there are many reasons for the increased popularity of the
matinee including the economy of the area and competition, the
quality of the matinee shows meets the expectation of the audience.
The group, however, needs to improve its evening shows to
differentiate these shows from competitors.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-53
Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-56 Small Business Market Size and Market Share Variances (15
min)
WS = Welcome Signs; BH= Birdhouses
1. Budget (per month) Actual (per month)____
Diane’s Designs Industry Share Diane’s Designs Industry Share
WS 50 3,000 1.67% 45 3,000 1.5%
BH 25 200 12.5% 35 175 20%
4. Diane’s market share for Welcome Signs decreased while she did
very well for Birdhouses. The total market for Birdhouses decreased.
Yet Diane sold more units. Among possible reasons are changes in
quality, price, and seasonal variations.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-57 Sales and Variable Cost Variances; Current to Prior Year (25 min)
Volume Variance
Based on sales dollars: $120,000 = (25,000 – 22,000) x $40
Based on contribution:
= $120,000
Less increase in materials cost
(25,000 – 22,000) x $16 x 1 48,000
Less increase in labor cost
(25,000 – 22,000) x $10 x 2 60,000
Volume variance based on contribution $12,000
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
2. The materials usage and price variance and labor usage and rate variance
are computed as follows:
The center column, “Actual Input at Prior Year Rate” is determined as follows:
The actual materials used at the prior year price is determined as follows:
$300,000 = 25,000 x $16 x .75unit of materials/unit produced
The actual labor used at the prior year rate is determined as follows:
$562,500 = 25,000 x $10 X 2.25 hours/unit
The price and rate variances are determined by subtracting the “actual input at
prior year rate” from the actual dollars for 2010. The usage variances are
determined by subtracting the flexible budget from the “actual input at prior
year rate.”
3. First, to recap the $93,250 change in operating income from 2009 to 2010,
an increase from $88,000 to $181,250. The total sales increase is $145,000,
made up of a favorable selling price variance of $25,000 and a favorable sales
volume variance of $120,000, increasing sales from $880,000 in 2009 to
$1,025,000 in 2010. The cost of the additional sales was the additional
variable costs of $108,000 for the additional 3,000 units; materials cost of
$48,000 (3,000 x $16 x 1) and labor of $60,000 (3,000 x $10 x 2). The net
effect, before considering the usage and price variances for labor and
materials, is thus $145,000 - $108,000 = $37,000.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
The price variance for materials is $37,500 (U), reflecting the increase in cost
of materials from $16 to $18. On the other hand, the usage of materials was
favorable, resulting from a per unit usage of ¾ materials units per output in
2010 relative to a one unit of materials per output in 2009: a favorable usage
variance of $100,000 (25,000 x ¼ x $16). The net materials variance was
$62,500 favorable.
The labor rate variance is $56,250 in 2010, reflecting the decrease in the
hourly wage rate from $10 to $9, while the labor usage variance is $62,500
(U) due to the increase in labor from 2 hours per unit to 2.25 hours per unit.
The usage and price variances for materials and labor totaled $56,250 (F)
(=$18,750+$37,500) so that the total increase in operating income is $37,000
+ $56,250 = $93,250.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-58 Partial Operational and Financial Productivity; Medical Practice (45 min)
1.,2. Partial operational and financial productivity and separation of partial financial productivity:
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
3.
MEMO
TO: Jay Kloger, Comprehensive Medical Care
FROM: Joseph Marin, Marin & Associates
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
1.,2.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
3.
The unfavorable market share for the domestic market reflects the decline in
the company’s sales as the market increased; the unfavorable market share
variance of $15,946.59 is partly offset by the favorable market size variance of
$5,496.59
The very large favorable market share variance of $85,448 for the export
market reflects the large increase in exports due at least in part to the falling
dollar. The dollar fell more than 10% from the expected level of $1.29 to the
Euro, sparking a more than 25% increase in export sales. The large increase
is due to the lower cost of the beer to Euro consumers, plus an additional
increase due perhaps to the Euro consumer becoming more familiar with the
Big Springs brand. This is good news for BSB, as it could mean that, when
the dollar should rise again relative to the Euro, it may be able to retain some
of its new customers there.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-60 Sales and Variable Cost Variances; Current to Prior Year; Review
of Chapter 14 (30 min)
1.
Volume Variance
Based on contribution:
= $(176,337)
Less decrease in materials cost
(39,200-45,500) x $8.20 x 2 (103,320)
Less decrease in labor cost
(39,200 – 45,500) x $15 x .75 (70,875)
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
2.
3.
The analysis above shows that RJM has succeeded in returning to
profitability, despite the falling sales and sales prices. RJM has accomplished
this through reductions in materials price and usage and reductions in labor
rate and usage. The single strongest effect on the company was the $4.14
drop in price (from $27.99 to $23.85), creating an unfavorable selling price
variance of $162,288 . The sales volume variance is relatively small at $2,142
because the unit contribution in 2009 (which is used as a base for calculating
the volume variance) is relatively small at $27.99 – ($8.2x2) – ($15x.75) =
$0.34 per unit; the variance is $0.34 x (45,500-39,200) = $2,142.
All the materials and labor variances are favorable, totaling
$204,232 in all.
16-63