Budget variance Analysis – Kerala Kaumudi Assumptions:
Fixed Costs : General expenses, corporate funds, Annual books, Capital expense Variable Costs : Newsprint Costs, Channel expense
Sales Volume Variance : It is defined as (Actual units sold - Budgeted units sold) x Budgeted price per unit.
OUTFLOW Projected budget Sales volume variance Flexible Budget
SUM TOTAL 2368.21 -14.40 2353.81
Analysis:
This is short by 14.40 lakhs. This means that the actual number of newspapers sold is less than the budgeted number. We have assumed that the budget price to be the same as the actual price in our case. Hence, there is no possibility of selling price variance.
Possible Reasons:
Competition: There are around 25 newspapers now in circulation in the state of Kerala. The most prominent of them being Suprabhatham, Mathrubhumi, Madhyamam & Deshabhimani. Readership of top Malayalam dailies are
Malayala Manorama Mathrubhumi Suprabhaatham Madhyamam Kerala Kaumudi Deshabhimani
0 20 40 60 80 100120
Readership (in lakh)
Readership (in lakh)
Cannibalism: The newspaper company released its online version Kerala Kaumudi Flash which has the same content. Readers demand instant access to news, so newspapers have created online editions. Some of these editions are free, whereas others are offered at a reduced rate or licensed through digital media.Such formats virtually eliminate print and distribution costs, so the newspaper feeds the news more quickly and efficiently. This is affecting the sales & subscription of their traditional print based paper.
Flexible Budget Variance:
OUTFLOW
Flexible Budget
Flexible budget
variance Actual
SUM TOTAL 2353.81 13.99 2367.80
The flexible budget variance is unfavorable with a value of 13.99 lakhs. For the same level of activity there is a stark difference in the variable prices of channel expense (8.26 lakhs; actual vs. flexible), newsprint costs (2.30 lakhs) and the fixed costs like general & corporate expenses (13.1 lakhs)
Possible reasons:
Increased distribution & production expenses: Commodities like oil and paper have become expensive as the general trend follows. The current newsprint cost is 28000-32000/ MT ₹ (http://inma.org.in/trend.html). It constitutes around 55-60% of the production expense. This has increased over the years and fluctuates heavily out of favor for the newspaper industry.
