Question

Market Size and Market Share Variances for Small Business Diane's Designs is a small business run out of its owner's house. For the past 6 months, the company has been selling two products, a welcome sign and a birdhouse. The owner has been concerned about the company's marketing effectiveness. The master budget and actual results for March of this year follow: 50 | Units Sales Variable costs Contribution margin Fixed costs Operating income Master Budget Wolcom. Sign Birdhous. 25 $1,000 $250 890 120 $ 110 $130 75 75 $ 35 $ 55 Total 75 $1,250 1,010 $ 240 150 $ 90 ༄༅། །] Page 706 Units Sales Variable costs Contribution margin Fixed costs Operating income Actual Results Wolcom. Sign Birdhous. 35 $675 $420 580 270 $ 95 $150 75 75 $ 20 $75 |elཉྩཱ ཡྻོ ། ། Total 80 $1,095 850 $ 245 150 $ 95 The total market for welcome signs for each of the last 6 months was 500 budgeted and 500 actual. Diane expected the total market for birdhouses to be 200 units per month; the actual volume for the entire market, however, turned out to be only 175 units per month.
Help with 3 and 4, please.

Answer 1

Note : As specifically asked Help with 3 and 4, answered for the same only

3.

Values as provided in the issue

Budgeted for month				Actual for Month
Product	Welcome Sign	Bird House	Total	Welcome Sign	Bird House	total
units	50	25	75	45	35	80
Sales	1000	250	1250	675	420	1095
V/c	-890	-120	-1010	-580	-270	-850
Contribution	110	130	240	95	150	245
F/c	-75	-75	-150	-75	-75	-150
Profit	35	55	90	20	75	95
Market	500	200	700	500	175	675

Calculation of market share

Budgeted market share				Actual Market Share
Product	Diane's Design	Market	Share	Product	Diane's Design	Market	Share
A	B	C	D=B/C	A	B	C	D=B/C
Welcome Sign	50	500	10.00%	Welcome Sign	45	500	9.00%
Bird House	25	200	12.50%	Bird House	35	175	20.00%

Weighted Average Budgeted Contribution Margin Per Unit :
= Budgeted contribution margin per unit for both products/ Budgeted sales per unit for both products
= 240/75
= 3.2

Market size Variance

Market size variance	=[(Actual Industry Sales in Units – Budgeted Industry Sales in Units) x Budgeted Market Share Percentage] x Budgeted Average Unit Contribution Margin.

Welcome Sign	=[(500-500) x 10.00%] x 3.2
	= 0

Bird House	= [(175-200) x 12.50%] x 3.2
	=10 unfavorable

4. Possible reason for the above variance

Diane’s market size for Welcome Signs remain unchanged while total market for Bird House decreased from budgeted 200 units to actual 175 units . While Diane’s market share for Welcome Signs decreased while it did very well for Birdhouses.

Yet Diane able to sold more units (i.e 80-75 = 5 units).Hence possible reasons for the same may includes changes in quality, price, and seasonal variations etc..