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## Sales Value Variance

This Variance is also called Sales revenue variance. This is the net variance of sales as a whole. It is the difference between budgeted sales and actual sales.

The formula for computing this variance is: Sales Value Variance = Actual Sales – Budgeted Sales

If actual sales are more than the budgeted sales a favourable variance would be reported and vice versa. This variance is on account of difference in price or volume of sales. It is further subdivided into two variances as – (i) Sales price variance and (ii) Sales volume variance.

(i) Sales Price Variance

This variance measures the impact of change in selling price on the turnover as a whole. It is measured by the difference between Standard sales and Actual sales.

The formula is:

Sales Price Variance =

Actual Quantity Sold X (Actual Selling Price – Standard Selling Price)

Or

Sales Price Variance = Actual Sales – Standard Sales

(ii) Sales Volume Variance

This variance measures the impact of changes in quantum of products sold. Sales volume variance is the difference between the standard sales and budgeted sales. If the standard sales are more than the budgeted sales, it gives rise to favourable variance and vice versa. The formula is:

Sales Quantity Variance =

Sales Volume Variance = Standard Sales – Budgeted Sales.

Or

= Standard Price X (Budgeted Quantity – Actual Quantity)

Where,

Standard Sales = Standard Price X Actual Sales

This variance may arise due to unexpected competition, ineffective advertising, lack of proper supervision, etc.

In the case of multi product situations, Sales Volume Variance can be further subdivided into (i) Sales Quantity Variance and (ii) Sales Mix Variance. These two sub-variance can be calculated as follows:

(i) Sales Quantity Variance

It is the difference between the Budgeted Sales and Revised standard sales. The formula is:

Sales Quantity Variance = Revised Standard Sales – Budgeted Sales

Or

= (Revised Standard Quantity – Budgeted Quantity) X Std. Price

Where,

RSQ = Total actual Quantity X Standard Ratio of Units

(ii) Sales Mix Variance

This variance arises when the proportion of actual sales mix. It is the difference between Revised Standard Sales and Standard Sales. The formula is:

Sales Mix Variance = Actual Sales – Revised Sales

Or

= (Actual Quantity – Revised Standard Quantity) Std. price of each product

Where,

RSQ = Total Actual Quantity X Standard Ratio of units

Check

Sales Value Variance = Price Variance + Volume Variance

Sales Volume Variance = Sales Mix Variance + Sales Quantity Variance

Sales Margins or Profit Variances Method

These can also be called profit variances, as sales margin is nothing but profit. Now, this variance is very essential as management takes key decisions based on profitability. Individually the cost variances or revenue variance (sales variances as based on turnover) cannot convey any clear meaning.  But profit variances do so.

Sales Margin Variance

This can also be called as ‘Overall profit variance’. This represents the difference between the Budgeted Sales margin or Budgeted Profit and Actual Sales Margin or Actual Profit. The formula is:

Sales Margin Variance = Budgeted Sales Margin – Actual Sales Margin

Sales Margin Variance can be subdivided into:

1) Sales Price Variance and

2) Sales Volume Variance

1. Sales Price Variance (Based as Margins)

This variance arises due to the difference between the Standard Price of quantity of sales and actual price of sales. In other words, it is the difference between Standard Profit and Actual Profit.

Sales Price Variance = Standard Profit – Actual profit

Or

= Actual Quantity (Standard Profit per unit – Actual Profit per unit)

Where,

Std. profit = A.Q X Std. profit per unit

If the actual profit is greater than the standard profit, the variance is favourable and vice versa. This variance can arise due to the following reasons:

1) Rise in price levels net anticipated earlier

2) Fall in price due to availing discounts and bulk buying

3) Intense competition not foreseen earlier

2. Sales volume Variance (based on Margins)

This variance arises due to quantity of goods being sold differing from quantity of goods budgeted to be sold. Now this can arise due to

- Intense competition unforeseen earlier or inefficiency of sales personnel

Symbolically this can be represented as:

Sales Volume Variance = Standard profit per unit (Standard Quantity – Actual Quantity)

If the actual quantity is greater than standard quantity, the variance is favourable and vice versa. This variance can be further sub-divided in case of multi-product selling units into:-

1) Sales Quantity variance

2) Sales Mix Variances

(i) Sales Quantity Variance

This is the difference between budgeted profit and revised standard profit.

Symbolically:

Sales Quantity Variance =

Standard profit per unit X (Standard quantity – Revised Standard Quantity)

RSQ = Total AQ X Standard ratio

If RSQ is greater than SQ, the variance is favourable and vice versa.

(ii) Sales Mix Variance

This arises due to the proportion of these items constitution the standard mix different from the actual proportion. It is difference between Revised Standard Profit and Standard Profit.

Symbolically;

Sales Mix Variance =

Standard Profit per unit X (Revised Standard quantity – Actual quantity)

If the actual quantity is more than RSQ, the variance is favourable and vice versa.

Example

A toy company gives you the following data for a month. You are required to calculate the variance based on profit?

 Toy Budgeted Actual Quantity Rate Cost per unit Quantity Rate A 900 50 45 1000 55 B 650 100 85 700 95 C 1200 75 65 110 78

Solution:

Statement of Budged Profit and Actual Profit per unit

 Toy SQ SP (\$) Total sales (\$) Cost per unit (\$) Total cost unit (\$) Profit per unit (\$) Total profit (\$) A 900 50 45000 45 40500 5 4500 B 650 100 65000 85 55250 15 9750 C 1200 75 90000 65 78000 10 12000 2750 200000 173750 26250

 Actuals A 1000 55 55000 45 45000 10 10000 B 700 95 66500 85 59500 10 7000 C 1100 78 85800 65 71500 13 14300 2800 207300 176000 31300

Revised Standard Quantity (RSQ) = Total Actual Quantity X Std. Ratio

= 2800 X (18:13:24)

18

A = 2800 X ----- = 916

55

13

B = 2800 X ----- = 662

55

24

C = 2800 X ----- = 1222

55

### Calculation of Profit Variances:

1) Sales Margin Variance = Budgeted Profit – Actual Profit

 Toy Budgeted Profit (\$) Actual Profit (\$) Variance (\$) A 4500 10000 5500 (F) B 9750 7000 2750(A) C 12000 14300 2300 (F) Total 26250 31300 5050 (F)

2) Sales Price Variance = Standard Profit – Actual Profit

Where,

Standard Profit = Actual Quantity X Profit per unit

 Toy Standard Profit (\$) Actual Profit (\$) Variance (\$) A 5000 10000 5500 (F) B 10500 7000 3500 (A) C 11000 14300 3300 (F) Total 26250 31300 4800 (F)

3) Sales Volume Variance =

Standard Profit per unit X (Standard Quantity – Actual Quantity)

 Toy Std. profit X Std. quantity (\$) Actual Quantity (\$) Variance (\$) A 5 X 900 1000 500 (F) B 15 X 650 700 1000 (F) C 10 X 1200 1100 1000 (A) Total 250 (F)

4) Sales Quantity Variance =

Standard profit per unit X (Standard Quantity – Revised Standard Quantity)

 Toy Std. profit X Std. quantity RSQ Variance (\$) A 5 X 900 - 916 80 (F) B 15 X 650 - 662 180 (F) C 10 X 1200 - 1222 220 (F) Total 480 (F)

II Sales Mix Variance =

Standard profit per unit X (Revised standard quantity – actual quantity)

 Toy Std. profit (\$) X Revised std. quantity - Actual quantity Variance (\$) A 5 X 916 1000 B 15 X 662 700 C 10 X 122 1100 Total

Check

Sales Volume Variance = Sales Quantity Variance + Sales Mix Variance

250 (F) = 480 (F) + 230 (A)

Sales Margin Variance = Sales Price Variance + Sales Volume Vaiance

5050(F) = 4800 (F) + 250 (F)

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