Required

Discuss and analyse sales price and sales volume variances that you have calculated. Are they favourable or unfavourable? What are the drivers of these variances?

Case Study: Black Tyres (BT) manufactures and sells two products in Australia: low-budget tyres and high performance tyres. Low-budget tyres are made from hard rubber for durability while high performance tyres are made from softer rubber for superior grip in wet conditions. When the low-budget model was introduced in the market, another competitor from India introduced low priced tyres with almost alike features. Due to this, the Sales Director decides to reduce the price of low-budget tyres so that sales do not get hurt. At the same time, the sales director decided to run a marketing campaign demonstrating the benefits of high performance tyres and promoting the brand to the top-segment customers. The campaign focused on unique features and safety of high-performance tyres. The market is growing by about 0.8% per year, with strong competition due to tyres imported from India. The CFO, Peter Srock, has provided extracts from last years actual income statement and profit plan. When Peter prepared the budget in November 2017, he expected and assumed that the market would grow by 0.80% compared to the previous year. When he received the Annual Tyre Industry Report, he found that the market actually grew by 0.75%.