Standard Costing- Sales Variances
For the purpose of analyzing sales variance, the technique of analysis of variance can
be effectively used. For the purpose of identification of the reasons for the divergences
between budgeted & actual performance so that it becomes possible to take adequate
control measures, use can be made of sales variance analysis.
Sales variances can be computed by applying two methods: (a) on the basis of turnover, & (b)
on the basis of profit margin. However the results of two methods are not compatible.
Variances based on Turnover:
Sales Value Variance: This is the basic variance which can
be calculated by making comparison between the actual sales & budgeted sales.
The formula is:
Budgeted
Sales – Actual Sales
Two sub-variances constitute this basic variance, viz., (a) sales price variance, & (b)
sales volume variance.
Sales Price Variance: The comparison between actual sales value & actual
sales at standard values is done by Sales Price variance. The formula is:
Actual
Sales – Standard Sales
Or,
Actual Sales – Actual Sales at standard price
Or,
(Actual price – Standard price)* Actual quantity sold
Sales Volume Variance: The comparison between budgeted sales & actual
sales at standard values are done by Sales Volume variance. The formula is:
Budgeted
Sales – Standard Sales
Or,
Budgeted Sales – Actual Sales at standard price
Or,
(Budgeted quantity – Actual quantity) * Standard price
The sales volume variance can be sub-divided into two components (a) sales
Mix variance & (b) sales quantity variance, when sale of more than one product
is made.
Sales Mix Variance: The effect of variations from the planned
sales mixture is shown by the sales mix variance.
The formula is:
Standard
Sales – Revised Standard Sales
Or, Standard price per unit * (Actual quantity at actual mix – Actual quantity
at standard mix)
Sales Quantity Variance:
The effect of the unit volume which
varies from the budget is revealed by the sales quantity variance.
The formula is:
Revised
standard sales – Budgeted sales
Or, Standard price per unit * (Actual quantity at standard mix – Budgeted
quantity at standard mix)
Relationship
between the variances:
Sales Value Variance = Price Variance + Volume Variance
Sales Volume Variance = Mix Variance + Quantity Variance
Illustration 1: In respect of a product, the budgeted & actual
sales for a period are as under:
Budgeted
Sales Actual
Sales
Quantity Price Quantity Price
Unit $/unit Unit $/unit
A 4000 20 4500 22
B 6000 16 3000 14
Calculate the necessary variances explaining the difference between the budgeted & the
actual sales & prepare a reconciliation statement.
Solution:
Budgeted Sales: $
A 4000
units @ $ 20 80000
B 6000 units
@ $ 16 96000
10000
units 176000
Actual Sales:
A 4500
units @ $ 22 99000
B 3000 units
@ $ 14 42000
7500 units 141000
Revised Standard Mix (i.e. actual total quantity in budgeted ratio):
A 4/10
* 7500 3000
units
B 6/10
* 7500 4500 units
7500 units
$
Total Sales Variance = Budgeted Sales – Actual Sales
=
$ 176000 - $ 141000 35000 A
Sales Price Variance = Price difference * Actual Quantity
A ($
20 - $ 22) * 4500 9000
F
B ($
16 - $ 14) * 3000 6000 A 3000
F 3000
F
Sales Volume Variance = Volume Difference * Standard Price
A (4000
- 4500) * 20 10000
F
B (6000
- 3000) * 16 48000 A
38000
A 38000 A
Check: Total Sales Variance = Price +Volume 35000 A
Sales Mix Variance = Standard Price * (Revised Standard Mix – Actual Mix)
A $
20 * (3000 - 4500) 30000 F
B $
16 * (4500 – 3000) 24000 A
6000
F 6000
F
Sales Quantity Variance = Standard Price *(Budgeted Quantity
– Revised Standard Quantity)
A $
20 * (4000 - 3000) 20000
A
B $
16 * (6000 – 4500) 24000 A
44000
A 44000 A
Check: Volume Variance = Mix + Quantity 38000 A
Reconciliation Statement
Budgeted Sales 176000
Variances:
Price 3000
F
Mix 6000
F
Quantity 44000 A 35000 A
Actual Sales 141000
Alternative Calculation:
Budgeted Sales (Already calculated earlier) 10000 units 176000
Average Standard Price = $ 176000 = $ 17.60 per unit
10000
units
Actual Sales (Already calculated earlier) 7500 units 141000
Actual Sales at Standard Price:
A 4500
units @ $ 20 90000
B 3000 units
@ $ 16 48000
7500 units 138000
Total Sales Variance:
Budgeted Sales 176000
Actual Sales 141000
Variance 35000
A 35000 A
Sales Price Variance:
Actual Sales at Standard Price 138000
Actual Sales at Actual Price 141000
Variance 3000
F 3000
F
Sales Volume Variance:
Budgeted Sales 176000
Actual Sales at Standard Price 138000
Variance 38000 38000 A
Check: Total Sales Variance = Price + Volume 35000 A
Sales Mix Variance:
Actual Mix at Standard Price 138000
Standard Mix of 7500 units at Standard Price
7500
units * $ 17.60 132000
Variance 6000
F 6000
F
Sales Quantity Variance:
Budgeted Sales 176000
Standard Mix of 7500 units at Standard Price 132000
44000
A 44000 A
Check: Volume Variance = Mix + Quantity 38000 A
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- Establishment of Standards
- Fixed Overhead Variances
- Labour Mix Variance, Revised Efficiency Variance
- Labour Variances, Direct Labour Cost Variance
- Material Mix Variance, Material Yield Variance
- Material Variances
- Setting of Standards
- Standard Costing- Introduction
- Standard Time Determination, Standard Rate Determination
- Types of Standards
- Variances based on Profit Margin, Total Sales Margin Variance
- Variable Overhead Variances
