Sales variances

Sales variances
Variance is the difference between a planned, budgeted of standard cost and
the actual cost incurred. The same comparison can be made for revenues.

Variances are calculated in total using Flexible budgets and then broken down
further.
Total Sales variance

Sales efficiency variance Sales rate variance

Sales variances
Variance is the difference between a planned, budgeted of standard cost and
the actual cost incurred. The same comparison can be made for revenues.

Sales volume variance calculated differently under absorption and marginal

costing.
Sales variances

Volume variance Price variance

Sales variances
Variance is the difference between a planned, budgeted of standard cost and
the actual cost incurred. The same comparison can be made for revenues.

Sales volume variance calculated differently under absorption and marginal

costing.
Sales variances

Volume variance Price variance

Sales variances
Key pro forma – absorption costing

Volume variance
(AS – BS) x SPM

Price variance
(AP – SP) x AS

Actual Quantity x Actual Price

Sales variances
Key pro forma – absorption costing

Volume variance
(Actual Sales – Budgeted Sales) x Standard Profit Margin

Price variance
(AP – SP) x AS

Actual Quantity x Actual Price

Sales variances
Key pro forma – absorption costing

Price variance
(Actual Price – Standard Price) x Actual Sales

Actual Quantity x Actual Price

Sales variances
Example

Standard and budget:

Standard selling price $199 Mutually exclusive
Standard profit margin $78 projects
Budgeted sales 1,500
Must decide on which
Actual Results: of the two exclusive
Sales units 1,800 projects to take
Selling Price $195
Calculate all possible variances
Sales variances
Example – absorption costing

Volume variance
Mutually exclusive
(AS – BS) x SPM
projects
(1,800 – 1,500) x $78 = $23,400 Favourable
Must decide on which
of the two exclusive
projects to take
Sales variances
Example – absorption costing

Volume variance
Mutually exclusive
(AS – BS) x SPM
projects
(1,800 – 1,500) x $78 = $23,400 Favourable
Must decide on which
of the two exclusive
projects to take
Sales variances
Example – absorption costing

Volume variance
Mutually exclusive
(AS – BS) x SPM
projects
(1,800 – 1,500) x $78 = $23,400 Favourable
Must decide on which
of the two exclusive
projects to take
Sales variances
Example – absorption costing

Price variance
Mutually exclusive
(AP – SP) x AS
projects
($195 – $199) x 1,800 units = $7,200 Adverse
Must decide on which
of the two exclusive
projects to take
Sales variances
Example – absorption costing

Price variance
Mutually exclusive
(AP – SP) x AS
projects
($195 – $199) x 1,800 units = $7,200 Adverse
Must decide on which
of the two exclusive
projects to take
Sales variances
Example – absorption costing

Price variance
Mutually exclusive
(AP – SP) x AS
projects
($195 – $199) x 1,800 units = $7,200 Adverse
Must decide on which
of the two exclusive
projects to take
Sales variances
Example – marginal costing

Volume variance
Mutually exclusive
(AS – BS) x Standard Contribution Margin
projects
Standard Contribution Margin = Selling price – Variable costs
Standard Contribution Margin = $199 - $97 = $102/unit Must decide on which
of the two exclusive
(1,800 – 1,500) x $102 = $30,600 Favourable projects to take
Sales variances
Example – marginal costing

Volume variance
Mutually exclusive
(AS – BS) x Standard Contribution Margin
projects
Standard Contribution Margin = Selling price – Variable costs
Standard Contribution Margin = $199 - $97 = $102/unit Must decide on which
of the two exclusive
(1,800 – 1,500) x $102 = $30,600 Favourable projects to take
Sales variances
Example – marginal costing

Volume variance
Mutually exclusive
(AS – BS) x Standard Contribution Margin
projects
Standard Contribution Margin = Selling price – Variable costs
Standard Contribution Margin = $199 - $97 = $102/unit Must decide on which
of the two exclusive
(1,800 – 1,500) x $102 = $30,600 Favourable projects to take
Sales variances
Example – marginal costing

Volume variance
Mutually exclusive
(AS – BS) x Standard Contribution Margin
projects
Standard Contribution Margin = Selling price – Variable costs
Standard Contribution Margin = $199 - $97 = $102/unit Must decide on which
of the two exclusive
(1,800 – 1,500) x $102 = $30,600 Favourable projects to take
Sales variances
Example – marginal costing

Volume variance
Mutually exclusive
(AS – BS) x Standard Contribution Margin
projects
Standard Contribution Margin = Selling price – Variable costs
Standard Contribution Margin = $199 - $97 = $102/unit Must decide on which
of the two exclusive
(1,800 – 1,500) x $102 = $30,600 Favourable projects to take
Sales variances
Example – marginal costing

Volume variance
Mutually exclusive
(AS – BS) x Standard Contribution Margin
projects
Standard Contribution Margin = Selling price – Variable costs
Standard Contribution Margin = $199 - $97 = $102/unit Must decide on which
of the two exclusive
(1,800 – 1,500) x $102 = $30,600 Favourable projects to take
Sales variances
Changes to variances when using marginal costing

Remain the same Variances change

• Sales volume variance valued
• All variable cost variances
at standard contribution
• Sales price variance margin
• Fixed Overhead volume
• Fixed overhead expenditure (hence capacity and
efficiency) disappear
Sales variances
Changes to variances when using marginal costing

Remain the same Variances change

• Sales volume variance valued
• All variable cost variances
at standard contribution
• Sales price variance margin
• Fixed Overhead volume
• Fixed overhead expenditure (hence capacity and
efficiency) disappear
Sales variances
Changes to variances when using marginal costing

Remain the same Variances change

• Sales volume variance valued
• All variable cost variances
at standard contribution
• Sales price variance margin
• Fixed Overhead volume
• Fixed overhead expenditure (hence capacity and
efficiency) disappear
Sales variances
Changes to variances when using marginal costing

Remain the same Variances change

• Sales volume variance valued
• All variable cost variances
at standard contribution
• Sales price variance margin
• Fixed Overhead volume
• Fixed overhead expenditure (hence capacity and
efficiency) disappear
Sales variances
Changes to variances when using marginal costing

Remain the same Variances change

• Sales volume variance valued
• All variable cost variances
at standard contribution
• Sales price variance margin
• Fixed Overhead volume
• Fixed overhead expenditure (hence capacity and
efficiency) disappear
Sales variances
Changes to variances when using marginal costing

Remain the same Variances change

• Sales volume variance valued
• All variable cost variances
at standard contribution
• Sales price variance margin
• Fixed Overhead volume
• Fixed overhead expenditure (hence capacity and
efficiency) disappear