Question

Consider a firm in the “sharing economy,” such as Uber, Lyft, or Airbnb. Do you think they would benefit by computing and evaluating: (1) market share and industry volume variances, (2) sales mix and sales quantity variances, and (3) production mix and yield variances?

Answer 1

Yes, a firm in the sharing economy will certainly benefit by computing and evaluating these variances. Market share variance shows the quantum of sales activity variance due to change in the company’s proportion of sales in the markets in which it operates. Industry volume variance is the portion of the sales activity variance that is attributable to changes in in industry volume. Companies like Uber, Lyft etc. can use these two variances to gain insight for enabling them to make operational improvements in its next financial period.

Sales mix variance arises from the relative proportion of different products sold, holding constant the quantity effects. Sales quantity variance occurs from the change in volume of sales and this is independent of any change in sales mix. Companies like Uber, Lyft etc. can use the variance to determine the impact of substitution.

Production mix variance arises from a change in the relative proportion of inputs and production yield variance measures the difference between expected output from a given level of inputs and the actual output obtained from these inputs. This variance will not be much applicable for companies like Uber, Lyft as they are not manufacturing companies but rather are service aggregators. So production mix variance and yield variances will not be highly applicable in their cases.