Friday, June 6, 2008

Sale price Variance

Q:-9 How can you calculate sale price variance ?
Ans:- 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.
[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
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
(a) the sales VOLUME profit variance;
(b) the sales PRICE variance.
(a) The Sales VOLUME variance is:
[Actual units sold-budgeted units sold]x Standard profit per unit
(b) The Sales PRICE variance is:
[Actual selling price-budgeted selling price]x actual sales volume
=[$65-$70] x 12,000
To recheck:
Total PROFIT Variance= Sales Price Variance + Sales Volume Variance
Budgeted profit
=10,500 x $35=$367,500
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

About Accounting Education

An educational site with 2,000+ articles, solutions, video-guides and tutorials on all topics related to accounting and finance.

Get Update on Mobile

Type in your mobile phone web browser for free access anytime, from any place.The content is designed specifically for cell phones and mobile devices.

Contact Us

Contact us Send an Email Phone number and vCard LinkedIn profile Follow us on twitter