Sales Planning and Operational Variance

[kemiy]

I came across one question in BPP learning material on Planning and operational variance analysis (Activity 3) . The question says as below

Budget production and sales – 5000 units
Actual production and sales – 5200 and 5100 respectively
You discovered that industry sales of Chils were 10% lower than forecast

Required to analyze whether there was a favourable or Adverse Sales Volume planning and operational variance.

In answer, they have calculated revised sales volume as 4500 units. My question is

How have they derived this 4500 quantity as in above it says that sales were 10% lower than forecast!!

Please help me understand the above

 

[ChatGPT]

Sure, I'd be happy to help explain how the revised sales volume of 4,500 units was derived in your variance analysis question. Here's a breakdown of the calculation: 1. Understanding Industry Sales Forecast Decrease: - The question states "industry sales of Chils were 10% lower than forecast." 2. Calculate the Revised Forecast: - To find the revised sales volume, you need to adjust the original budget sales figure by a reduction of 10%. This means the revised sales volume should be 90% of the original forecast. - Original forecast sales: 5,000 units. 3. Performing the Calculation: - Revised Sales Volume = Original Forecast Sales Volume × (1 - Percentage Decrease) - Revised Sales Volume = 5,000 units × 0.90 (which is 90%) This will give us: - Revised Sales Volume = 5,000 × 0.90 = 4,500 units Hence, the revised sales volume is 4,500 units, where 10% reduction has been applied to the original budget sales. Here’s a summary in a tabular format for clarity:

Calculation Step	Details
Initial Budget Sales Volume	5,000 units
Industry Sales Reduction	10%
Revised Sales Volume Calculation	5,000 units × 0.90
Revised Sales Volume	4,500 units

This revised target of 4,500 units allows for an accurate comparison when calculating the variances. Favorable or Adverse Variance Analysis: Now to determine if the variance is favorable or adverse: - Sales Volume Planning Variance: - This looks at the difference between the original budget sales (5,000 units) and the revised forecast (4,500 units). - Planning Variance = 5,000 units - 4,500 units = 500 units (adverse, as the revised forecast is lower). - Sales Volume Operational Variance: - This compares the actual sales (5,100 units) and the revised forecast (4,500 units). - Operational Variance = 5,100 units - 4,500 units = 600 units (favorable, as actual sales are higher). Hence, the planning variance is adverse but the operational variance is favorable. I hope this clarifies the calculation and the concepts behind the sales volume variances! If you have any further questions, feel free to ask!

 

[kemiy]

Sure, I'd be happy to help explain how the revised sales volume of 4,500 units was derived in your variance analysis question.

Here's a breakdown of the calculation:

1. Understanding Industry Sales Forecast Decrease:
- The question states "industry sales of Chils were 10% lower than forecast of sales planning analyst."

2. Calculate the Revised Forecast:
- To find the revised sales volume, you need to adjust the original budget sales figure by a reduction of 10%. This means the revised sales volume should be 90% of the original forecast.
- Original forecast sales: 5,000 units.

3. Performing the Calculation:
- Revised Sales Volume = Original Forecast Sales Volume × (1 - Percentage Decrease)
- Revised Sales Volume = 5,000 units × 0.90 (which is 90%)

This will give us:
- Revised Sales Volume = 5,000 × 0.90 = 4,500 units

Hence, the revised sales volume is 4,500 units, where 10% reduction has been applied to the original budget sales.

Here’s a summary in a tabular format for clarity:

Calculation Step	Details
Initial Budget Sales Volume	5,000 units
Industry Sales Reduction	10%
Revised Sales Volume Calculation	5,000 units × 0.90
Revised Sales Volume	4,500 units

This revised target of 4,500 units allows for an accurate comparison when calculating the variances.

Favorable or Adverse Variance Analysis:
Now to determine if the variance is favorable or adverse:
- Sales Volume Planning Variance:
- This looks at the difference between the original budget sales (5,000 units) and the revised forecast (4,500 units).
- Planning Variance = 5,000 units - 4,500 units = 500 units (adverse, as the revised forecast is lower).

- Sales Volume Operational Variance:
- This compares the actual sales (5,100 units) and the revised forecast (4,500 units).
- Operational Variance = 5,100 units - 4,500 units = 600 units (favorable, as actual sales are higher).

Hence, the planning variance is adverse but the operational variance is favorable.

I hope this clarifies the calculation and the concepts behind the sales volume variances! If you have any further questions, feel free to ask!

thank you for your suggestion

 

[ChatGPT]

You're very welcome! I'm glad to hear that the explanation helped clarify the calculations and concepts behind your variance analysis. If you have any more questions about sales analysis, finance, or anything else, don't hesitate to ask. Wishing you all the best with your work, and I'm here if you need further assistance!