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Sales Variances: Price & Volume Explained

There are two types of sales variances: sales price variance and sales volume variance. A sales price variance occurs when the actual selling price per unit differs from the standard price. A sales volume variance occurs when the actual number of units sold differs from the standard number of units budgeted to be sold. Sales price variance is calculated as the difference between actual and standard price per unit multiplied by actual units sold. Sales volume variance is calculated as the difference between actual and standard units sold multiplied by the standard profit or contribution per unit. Examples are provided to demonstrate calculating each type of variance.

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137 views2 pages

Sales Variances: Price & Volume Explained

There are two types of sales variances: sales price variance and sales volume variance. A sales price variance occurs when the actual selling price per unit differs from the standard price. A sales volume variance occurs when the actual number of units sold differs from the standard number of units budgeted to be sold. Sales price variance is calculated as the difference between actual and standard price per unit multiplied by actual units sold. Sales volume variance is calculated as the difference between actual and standard units sold multiplied by the standard profit or contribution per unit. Examples are provided to demonstrate calculating each type of variance.

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getcultured69
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MA - Standard costing

Sales Variances
Types of Sales Variances

There are two types of sales variances:

● Sales price variance


● Sales volume variance

Sales price variance:

The sales price variance arises when there is a change in the selling price of a product in a budget period. The
sales price variances occur, for example, when discounts are given and the sales price is lower than budgeted
or when prices are increased because the demand for a product has increased and customers are willing to pay
a high price for something.

Sales price Actual sales in


= (Actual price per unit - Standard price per unit) x
variance units

Sales volume variance:

The sales volume variance arises when the number of units of a product sold in a budget period is different to
the number of units budgeted to be sold in the original fixed budget. Sales volume variances arise when demand
for a product increases for example, when there is a sale on or when production levels are lower than expected
during a budget period. Sales volume variances can also occur when there is a downturn in the economy and
there is less demand for goods which are considered to be luxury items.

Absorption costing Marginal costing

Sales volume profit variance Sales volume contribution variance

Standard Standard
(Actual sales in units - (Actual sales in units -
x profit per x contribution
Standard sales in unit) Standard sales in unit)
unit per unit

Example 1:
An entity planned to sell 12,000 units at a price of $12 per unit. The entity actually sold 10,000 units at a price of
$11 per unit. Calculate the sales price variance.

Solution 1:

Sales price variance = ($11 - $12) x 10,000


Sales price variance = $10,000

Since the actual price is lower than the standard price, the variance is adverse.

Example 2:

An entity planned to sell 10,000. The entity actually sold 12,000 unit. The standard profit is $6 per unit. Calculate
the sales volume variance.

Solution 2:
Sales volume variance = (12,000 - 10,000) x $6
Sales volume variance = $12,000

Since the actual volume is greater than the standard volume, the variance is favourable.

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