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!