# Explain what is Sales Price Variance & Sales Volume Variance

Management besides reviewing all the expenditure variance also take great care to investigate any variances in sales revenue.

This is because any variances in sales revenue has a direct impact upon the contribution and profitability of the business.

In a marginal cost system, the variances are calculated in contribution terms whereas:

In an absorption costing system, the sales variances are determined in terms of profit.

The TOTAL Sales Variance are segregated into the following two(2) variances:

 Sales PRICE Variance Measures the effect of the difference between the standard selling price per unit and the actual selling price. Formula: [Standard selling price per unit-Actual selling price per unit] x Actual quantity of units sold Sales VOLUME Variance · Measure the effect on contribution or profit of the divergence between actual sales and the budgeted level of sales. · In a marginal costing system the difference between the actual and budgeted sales is multiplied by the standard contribution per unit. · In an absorption system this difference is multiplied by the standard profit per unit. · Formula: [ Budgeted Sales level-Actual Sales level]x Standard Contribution or profit per unit Illustration: Company A budgeted sales are 3,500 Product A per month at a standard price of \$70 each against their unit cost of \$35. At the end of the third month, the actual sales revenue was \$780,000 and 12,000 Product A had been sold. Further details: Volume Unit selling price Profit per unit Budget 10,500 70          35 Actual 12,000 65 30 Required: Compute: (a) the sales VOLUME profit variance; (b) the sales PRICE variance. Solution: (a) The Sales VOLUME variance is: [Actual units sold-budgeted units sold]x Standard profit per unit =(12,000-10,500]x\$35 =\$52,500F (b) The Sales PRICE variance is: [Actual selling price-budgeted selling price]x actual sales volume =[\$65-\$70] x 12,000 =\$60,000A To recheck: Total PROFIT Variance= Sales Price Variance + Sales Volume Variance Budgeted profit =10,500 x \$35=\$367,500 Less: Actual profit =12,000 x \$30=\$360,000 Total PROFIT variance=\$367,500-\$360,000= \$7,500A From solution a & b: Sales VOLUME variance(\$52,500F) +Sales PRICE variance(\$60,000A)= \$7,500A

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