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Managing Productivity and Marketing Effectiveness

Managing Productivity and Marketing Effectiveness. Managing Marketing Effectiveness. A firm is effective in marketing when it: Earns the budgeted operating income, Attains budgeted market share, and Adapts to changes in the market. Sales Quantity Variance. Sales Mix Variance.

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Managing Productivity and Marketing Effectiveness

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  1. Managing Productivity and Marketing Effectiveness

  2. Managing Marketing Effectiveness • A firm is effective in marketing when it: • Earns the budgeted operating income, • Attains budgeted market share, and • Adapts to changes in the market.

  3. Sales Quantity Variance Sales Mix Variance Market Size Variance Market Share Variance Sales Variances andTheir Components Sales Variance Selling Price Variance Sales Volume Variance

  4. Variances thatare often used toevaluate marketing performance Selling Price andSales Volume Variances Selling Price Variance (SPV) Sales Volume Variance (SVV) The variance resultingfrom changes in thevolume of sales The variance resultingfrom changes in theprice of goods sold

  5. Selling Price Variance (SPV) Sales Volume Variance (SVV) SPV = (AP – SP) × AQ SVV = (AQ – SQ) × BC AP = Actual Sales Price SP = Budgeted (Standard) Sales Price AQ = Actual Sales Volume AQ = Actual Sales Volume SQ = Master Budget Sales (Standard) Volume BC = Budgeted Contribution Margin Variances thatare often used toevaluate marketing performance Selling Price andSales Volume Variances

  6. Selling Price andSales Volume Variances Let’s recall theCheese Co. example from Chapter 15.

  7. Selling Price andSales Volume Variances

  8. Selling Price andSales Volume Variances 8,000 units × $11 per unit 8,000 units × $10 per unit 10,000 units × $10 per unit

  9. Selling Price andSales Volume Variances SPV = (AP- SP) × AQSPV = ($11 per unit – $10 per unit) × 8,000 units SPV = $8,000 F

  10. Selling Price andSales Volume Variances SPV = (AP- SP) × AQSPV = ($11 per unit – $10 per unit) × 8,000 units SPV = $8,000 F SVV = (AQ – SQ) × BC SVV = (8,000 units – 10,000 units) × $5 per unit SVV = $10,000 U $50,000 ÷ 10,000 units

  11. Sales Mix andSales Quantity Variances Sales VolumeVariance Sales Mix Variance A measure of theimpact of a declinein the volume ofone product andan increase inthe volume ofanother product Sales Quantity Variance A measure of theimpact of a changein total sales quantity,holding the salesmix constant

  12. Sales Mix andSales Quantity Variances Consider a different example from theMagness Company.

  13. Sales Mix andSales Quantity Variances Magness CompanyFirst Quarter Estimated and Actual Results

  14. * ASQ = Quantity ofunits that wouldhave been soldat the expected mix. Sales Mix andSales Quantity Variances * Sales MixVariance$280,000 U Sales QuantityVariance$480,000 F Sales VolumeVariance = $200,000 F

  15. * ASQ = Quantity ofunits that wouldhave been soldat the expected mix. Sales Mix andSales Quantity Variances * Sales MixVariance$140,000 F Sales QuantityVariance$160,000 F Sales VolumeVariance = $300,000 F

  16. Sales Mix andSales Quantity Variances

  17. Sales Mix andSales Quantity Variances Due to mix change from 60% to 50%of 280,000 actual units sold × $10unit contribution

  18. Sales Mix andSales Quantity Variances Due to mix change from 40% to 50%of 280,000 actual units sold × $5unit contribution

  19. Sales Mix andSales Quantity Variances 80,000 total units ×60% expected mix Due to sale of 48,000 units more thanexpected × $10 unit contribution

  20. Sales Mix andSales Quantity Variances 80,000 total units ×40% expected mix Due to sale of 32,000 units more thanexpected × $5 unit contribution

  21. Market Size andMarket Share Variances Market share variance assesses the effect on operating income of changes of a firm’s proportions of the total market. Market size variancemeasures the effect on operating income of changes in the total market size of the firm’s product.

  22. Market Size andMarket Share Variances Consider the following additional data from the Cheese Co.

  23. How much of the 2,000 unit sales activity decline is due to general market conditions, and how much is due to a change in the company’s market share? Market Size andMarket Share Variances Estimated market volume = 40,000 units Cheese Co. estimated market share = 25 percent Budgeted Cheese Co. sales = .25 × 40,000 = 10,000 units Actual market volume = 33,333 units Actual Cheese Co. sales = 8,000 units Actual Cheese Co. market share = 8,000 ÷ 33,333 = 24 percent

  24. Market Size andMarket Share Variances Given the industry volume decline from 40,000 to 33,333units, Cheese Co. would expect a volume decline of 1,667units at the expected market share of 25 percent: (40,000 – 33,333) × .25 = 1,667 units U (rounded)

  25. Market Size andMarket Share Variances Given the industry volume decline from 40,000 to 33,333units, Cheese Co. would expect a volume decline of 1,667units at the expected market share of 25 percent: (40,000 – 33,333) × .25 = 1,667 units U (rounded) The market share decline from 25 to 24 percent resultsin an unfavorable market share effect of 333 units: (.25 – .24) × 33,333 = 333 units U (rounded)

  26. Market Size andMarket Share Variances Given the industry volume decline from 40,000 to 33,333units, Cheese Co. would expect a volume decline of 1,667units at the expected market share of 25 percent: (40,000 – 33,333) × .25 = 1,667 units U (rounded) The market share decline from 25 to 24 percent resultsin an unfavorable market share effect of 333 units: (.25 – .24) × 33,333 = 333 units U (rounded) Sales quantity variance in units = 1,667 units U + 333 units U = 2,000 units U

  27. Market Size andMarket Share Variances Multiplying each unit amount by the standard contributionmargin converts each unit amount to a variance in dollars: Industry volume variance = ($10 – $5) × 1,667 units = $ 8,335 U Market share variance = ($10 – $5) × 333 units = 1,665 U Sales quantity variance = $10,000 U

  28. SP = Standard Sales Price BMS = Budgeted Market Share SV = Standard Variable Cost AIQ = Actual Industry Volume AQ = Actual Quantity SQ = Standard Quantity Market Size andMarket Share Variances Market sharevariance Market sizevariance

  29. * Rounded downto agree withprevious example Market Size andMarket Share Variances * Market sharevariance$1,665 U Market sizevariance$8,335 U Sales quantityvariance = $10,000 U

  30. End of Chapter 17

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