Market-Share and Market-Size Variances

The total quantity of Provalues sold depends on overall demand for similar computers in the market, as well as Provalue Division’s share of the market. Assume that the Provalue Division derived its total unit sales budget of 155,000 Provalue computers for 2019 from a management estimate of a 20% market share and a budgeted industry market size of 775,000 units (0.20×775,000 units=155,000 units). For 2019, actual market size was 800,000 units and actual market share was 18.75% (150,000 units÷800,000 units=0.1875 or 18.75%). Exhibit 15-13 shows the columnar presentation of how the Provalue Division’s sales-quantity variance can be decomposed into market-share and market-size variances.

Exhibit 15-13

Market-Share and Market-Size Variance Analysis of Provalue Division of Astel Computers for 2019a

Table shows market-share and market-size variance analysis of Provalue Division of Astel computers for 2016.

Details of analysis and footnotes are as follows:

  1. Actual market size multiplied by actual market share multiplied by budgeted contribution margin per composite unit for budgeted mix: $36,750,000 (calculated by taking the product of 800,000, 18.75%, and 245)

  2. Actual market size multiplied by budgeted market share times budgeted contribution margin per composite unit for budgeted mix: $39,200,000 (calculated by taking the product of 800,000, 20%, and $245)

  3. Static budget: budgeted market size multiplied by budgeted market share times budgeted contribution margin per composite unit for budgeted mix: $37,975,000 (calculated by taking the product of 775,000, 20%, and $245)

  4. Market-share variance: $2,450,000 Unfavorable is the difference of above (1) and (2).

  5. Market-size variance: $1,225,000 Favorable effect on operating income is the difference of above (2) and (3).

  6. Sales-quantity variance: $1,225,000 Unfavorable is the difference of above (1) and (3).

Note: Actual market share is 150,000 units divided 800,000 units which is equal to 0.1875 or 18.75%.

Budgeted market share is 155,000 units divided by 775,000 units which is equal to 0.20 or 20%.