Chapter 6: Further Variance Analysis

Question 1

What are the two types of variances you can split sales volume variances into for organisations that sell more than one product?

Answer 1

Sales Mix Variance
Sales Quantity Variance

Question 2

What are the two ways to calculate sales mix variance?

Answer 2

Individual units method
Weighted average contribution method

Question 3

How do you calculate sales quantity variance?

Answer 3

(actual sales quantity - budgeted total sales quantity) x standard weighted average margin

Question 4

What are the benefits of splitting the sales volume variance?

Answer 4

Identify trends in sales of individual elements
Indicate changes in the size of the market and/or the change in the market share
Identifying and exploiting their causes
Gauge the success or failure of new marketing campaigns
Responsibility accounting is improved

Question 5

What are the problems of splitting the sales volume variance?

Answer 5

Mix is controllable
May be inter-dependent
Products have some sort of relationship between them
Can be sometimes be difficult to apply these techniques in organisations which have very broad product ranges

Question 6

Planning variances should always be calculated using what?

Answer 6

Actual volume of production