Copyright © 2003 Pearson Education Canada Inc.
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Chapter 16
Revenues, Sales Variances, and Customer Profitability Analysis
Copyright © 2003 Pearson Education Canada Inc.
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Revenue Allocation
Revenue allocation occurs when revenues, related but not traceable to individual products (services or customers), are assigned to individual products
a Bundled product is a package of two or more products or services, sold for a single price, each with their own stand-alone prices
Often called suite sales
Allocate revenues to products based on
selling prices or unit costs
physical units
stand-alone product revenues
incremental revenues
Pages 599 - 600
Copyright © 2003 Pearson Education Canada Inc.
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Revenue Allocation – Stand Alone
WordMaster
$250
SpreadMaster
$300
FinanceMaster
$450
Suite price for all three products = $760
Allocation based on Stand-Alone Prices
WordMaster $250 / $1,000 x $760 = $190
SpreadMaster $300 / $1,000 x $760 = 228
FinanceMaster $450 / $1,000 x $760 = 342
$760
Pages 600 - 601
Copyright © 2003 Pearson Education Canada Inc.
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Revenue Allocation - Incremental
WordMaster
$250
SpreadMaster
$300
FinanceMaster
$450
Suite price for all three products = $760
Allocation based on Incremental Prices *
FinanceMaster $450
SpreadMaster 300
FinanceMaster ($760 - $450 - $300) 10
$760
Pages 600 - 601
* Assume primary product is Finance, then Spread, then Word
Copyright © 2003 Pearson Education Canada Inc.
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Sales Volume Variance
Static Budget Variance
Pages 603 - 606
Flexible Budget Variance
Sales Volume Variance
Sales Volume Variance
= (actual unit sales - budgeted unit sales) x budgeted contribution margin per unit
Copyright © 2003 Pearson Education Canada Inc.
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Sales-Mix and Sales-Quantity Variances
Sales-mix variance
Actual Actual Budgeted Budgeted
= units of all x sales - sales x contribution
products sold mix % mix % margin per unit
Sales-quantity variance
Actual Budgeted Budgeted Budgeted
= units of all - units of all x sales x contribution
products sold products sold mix % margin per unit
Pages 606 - 608
Copyright © 2003 Pearson Education Canada Inc.
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Market-Share and Market-Size Variances
Market-share variance
Actual Actual Budgeted Budgeted average
= market size x market - market x contribution
in units share % share % margin per unit
Market-size variance
Actual Budgeted Budgeted Budgeted average
= market size - market size x market x contribution
in units in units share % margin per unit
Pages 608 - 610
Copyright © 2003 Pearson Education Canada Inc.
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Customer Profitability Analysis
Consider profitability of individual customers taking into account:
customer specific costs
distribution channel costs
customer support costs
corporate sustaining costs
Look at customers in terms of
short-run and long-run profitability
likelihood of retention
growth potential
increases in overall demand from well-known customers
ability to learn from a customer
Pages 611 - 616
Copyright © 2003 Pearson Education Canada Inc.
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Mix and Yield Variances for Inputs
Pages 620 - 623
Mix variance
Actual Budgeted Actual total Budgeted
= input - input x inputs x price per
mix % mix % used input unit
Yield variance
Actual total Budgeted total Budgeted Budgeted
= units of - units of x input x price per
input used inputs used mix % input unit
Copyright © 2003 Pearson Education Canada Inc.
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Mix and Yield Variances
Static Budget Variance
Pages 620 - 623
Flexible Budget Variance
Sales Volume Variance
