Market-Share and Market-Size Variance Analysis of Space Infonautics for the Third Quarter

2017.

Static Budget:
Actual Market Size Actual Market Size Budgeted Market Size
 Actual Market Share  Budgeted Market Share  Budgeted Market Share
 Budgeted Average  Budgeted Average  Budgeted Average
Contribution Margin Contribution Margin Contribution Margin
Per Unit Per Unit Per Unit
500,000  0.23a  $125.10b 500,000  0.25c  $125.10 b 444,000  0.25c  $125.10b
$14,386,500 15,637,500 $13,886,100
$1,251,000 U $1,751,400 F
Market-share variance Market-size variance
$500,400 F
Sales-quantity variance

F = favorable effect on operating income; U = unfavorable effect on operating income

a
Actual market share: 115,000 units ÷ 500,000 units = 0.23, or 23%
b
Budgeted average contribution margin per unit $13,886,100 ÷ 111,000 units = $125.10 per unit
c
Budgeted market share: 111,000 units ÷ 444,000 units = 0.25, or 25%

2. The actual market size of 500,000 units exceeded the projected size of 444,000 units,
leading to a favorable market-size variance. Space Infonautics’ share of the market declined
from 25% to 23%, but the substantially favorable market-size variance exceeded the unfavorable
market-share variance resulting in a favorable sales-quantity variance overall:

Sales-Quantity Variance
$500,400 F

Market-Share Variance Market Size Variance

$1,251,000 U $1,751,400 F

2. The required actual market size is the budgeted market size, i.e., 444,000 units. This can
easily be seen by setting up the following equation:

Budgeted
Market-size   market size  market size   market  contribution margin
Actual Budgeted Budgeted
variance  in units in units  share per composite unit
 for budgeted mix
 = (M – 444,000) × 0.25 × $125.10

When M = 444,000, the market-size variance is $0.

Actual Market-Share Calculation

Again, the answer is the budgeted market share, 25%. By definition, this will hold
irrespective of the actual market size. This can be seen by setting up the appropriate
equation:

Budgeted
Actual  Actual Budgeted  contribution margin
Market-share
variance = market size   market  market   per composite unit
in units  share share  for budgeted mix
= Actual market size × (M – 25%) × $125.10

When M = 25%, the market-share variance is $0.