Advanced : Sale s variances A company which employs a salesman in each of its territories has decided to use the following standards in assessing salesmen's performance:

(A) Target sales are based on each territory's annual potential.

For territory 1 these are £180000 p.a. and for territory 2 these are £295 000 p.a.

(B) Each territory's standard sales mix contribution is 32%.

(C) (i) Commission is payable at 31ho/o of sales.

(ii) If sales exceed 110% of target, an extra 1% of the excess is payable.

(iii) If the contribution percentage is above standard, commission increases by 20% of the gain.

(iv) If the contribuhon percentage is below standard, commission decreases by 10% of the loss.

(D) Standard salesmen's expenses and travelling costs:

Expenses £2000 p.a.

Mileage allowance at 0.2 miles per £ of sales Travelling costs at £0.15 per mile.

Actual results for the year were:

You are required to:

(a) calculate (i) the standard profit for Territory 1

(ii) the actual profit for Territory 2; (6 marks)

(b) calculate variances that show the performance of the salesman in each of the two territories; (12 marks)

(c) compare the performance of each salesman and give three brief conclusions that would be of value to the sales manager.

Transcribed Image Text:

Sales Sales mix Mileage Expenses contribution run incurred Territory 1 Territory 2 240 000 29% 58000 2900 270 000 33% 42000 1800