Sales Variances (Cambridge International A-Level Accounting)
Spec point — how to calculate the following variances: – sales price and volume
Sales Variances
How to calculate the sales variances?
Sales Variances
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The total sales variance is the difference between the budgeted sales and the actual sales
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It is split into two variances
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Sales price variance
- The variance due to the difference between the budgeted and actual selling price
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Sales volume variance
- The variance due to the difference between the budgeted and actual quantity of sales
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| Total sales variance | |
|---|---|
| What is the formula? | (actual quantity × actual selling price) - (standard quantity × standard selling price) |
| What are the steps? | - Find total budgeted sales by multiplying the budgeted quantity of units with the standard selling price - Find total actual sales by **multiplying **the actual quantity of units with the actual selling price - Find the difference between the two total sales |
| When is it favourable? | The** actual sales** are more than the standard sales |
| Sales price variance | |
| What is the formula? | actual quantity sold × (actual selling price – standard selling price) |
| What are the steps? | - Find the difference between the actual selling price and the standard selling price per unit - Multiply by the actual quantity sold |
| When is it favourable? | The actual selling price is more than the standard selling price |
| Possible causes of variances | - Change in fashion and taste - Change in competition - Development of different pricing strategies - Supply factors may impact the selling price - Changes in margin and mark-up policies |
| Sales volume variance | |
| What is the formula? | standard selling price × (actual quantity sold – standard quantity sold) |
| What are the steps? | - Find the difference between the standard quantity and the actual quantity sold - Multiply by the standard selling price per unit |
| When is it favourable? | The actual quantity sold is more than the standard quantity of output |
| Possible causes of variances | - Changes in market share and domination - Changes in supply and demand - Changes in the quality of the product or service - Changes in price will lead to a change in demand |
Worked Example Brakes Ltd make brake pads. Here is the annual budgeted and actual information:
Budgeted Actual Revenue ($) 225 000 252 000 Selling price ($) $45 $42 Calculate:
(i) sales price variance
(ii) sales volume variance
(iii) total sales variance
Answer:
(i) Sales Price Variance
Find the actual quantity sold
$252 000 ÷ $42 = 6 000 units
Use the formula
- actual quantity sold × (actual selling price – standard selling price)
- It is adverse because the actual selling price is less than budgeted selling price
6 000 × ($42 - $45)
Final answer: $18 000 Adverse
(ii) Sales Volume Variance
Find the standard quantity sold
$225 000 ÷ $45 = 5 000 units
Use the formula
- standard selling price × (actual quantity sold – standard quantity sold)
- It is favourable because the actual number sold is more than the budgeted quantity
$45 × (6 000 - 5 000)
Final answer: $45 000 Favourable
(iii) Total Sales Variance
Combine the variances
Sales price variance $18 000 ADV Sales volume variance $45 000 FAV Total sales variance $27 000 FAV Alternatively, you can use the formula
- (actual quantity × actual selling price) - (standard quantity × standard selling price)
(6 000 × $42) - (5 000 × $45)
Final answer: $27 000 Favourable
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