Final answer:
The market-size variance for IGP is negative $225,000, calculated by multiplying the difference in actual and budgeted market sizes by the budgeted contribution margin per unit.
Step-by-step explanation:
The market-size variance of a company is calculated to assess the impact of the actual market size compared to the budgeted market size on the budgeted profit. It can be calculated by taking the difference between the actual market size and the budgeted market size, then multiplying it by the budgeted contribution margin (cm) per unit. In the case of IGP, which produces computer hardware equipment, the calculation would be as follows:
- Actual market size (units): 46,000
- Budgeted market size (units): 61,000
- Budgeted cm per unit: $15.00
We first find the difference in market size:
46,000 units (actual) - 61,000 units (budgeted) = -15,000 units
Then, we multiply this figure by the budgeted contribution margin per unit:
-15,000 units × $15.00/cm = -$225,000
The market-size variance for IGP is negative $225,000. This indicates that due to the smaller than expected market size, the company experienced a negative variance, impacting their contribution towards fixed costs and profits.