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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Strategic Cost & Performance Management

Case: Godavari Textiles Ltd found its budgeted profit of Rs 10,00,000 was based on sales of 20,000 units at a standard margin of Rs 50 per unit. Actual sales were 18,000 units. Market research later showed total industry demand was 10% lower than planned, which accounts for part of the shortfall; the company's budgeted market share was 20% of 1,00,000 units. Actual industry demand was 90,000 units. What is the sales market size variance and market share variance (in contribution terms)?

The market size variance is Rs 1,00,000 adverse, as industry demand fell by 10,000 units and the company's 20% share at Rs 50 margin equals that loss. Market share variance is nil because actual share was still 20%.

  1. AMarket size Rs 5,00,000 adverse; market share nil
  2. BMarket size Rs 5,00,000 adverse; market share Rs 5,00,000 favourable
  3. CMarket size Rs 1,00,000 adverse; market share nilCorrect
  4. DMarket size Rs 1,00,000 adverse; market share Rs 1,00,000 favourable

Explanation

Market size variance = (90,000-1,00,000) x 20% x Rs 50 = Rs 1,00,000 adverse. Actual share = 18,000/90,000 = 20%, equal to budget, so market share variance is nil. Total volume variance of 2,000 units x 50 = Rs 1,00,000 adverse is fully explained by market size.

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