## Answer

## What are Sales Variances?

The change in price and change in sales quantity give birth to **sales variances**. There are two approaches to compute sales variances that are explained below:

**1.** Turn over method

**2.** Profit method

### 1. Turn Over method

The turn over method can be :

**(i) Value variance**

This is the difference between budgeted Sales and Actual Sales.

**(ii) Volume variance**

This is the variation which is represented by the amount of sales thus, the difference between standard sales to the amount of actual sales. thus :

Volume variance = (Budgeted Sales – Actual Sales)

**(iii) Quantity variance**

Sometimes standard sales differ from actual budgetary sales. This is known as quantity variance. Thus :

Quantity variance = (Budgeted Sales – Revised Standard Sales)

**(iv) Mix variance**

This is popularly known as the difference between revised standard sales and standard sales. Thus it shows that the actual mix of sales has not been in the same ratio as was specified in budgeted sales. Thus it can be:

Mix variance = (Revised Standard Sales – Standard Sales) Or (RSS – SS)

## 2. Profit Method

Profit method of computing sales variances can be:

(a) Value variance

(b) Price variance

(c) Volume variance

(d) Mix variance

**(a) Value Variance**

This difference is arrived due to the difference in budgeted profit to actual profit. Thus:

(Budgeted profit — Actual Profit)

**(b) Price Variance**

It is represented by the difference between Standard Profit and Actual profit. Thus, variance is same as price variance in turnover technique. It is assumed that price change would affect turnover and profit equally. Thus:

Price variance = (St. profit – Actual Profit)

**(c) Volume variance**

It is represented by the amount of difference in profit calculated from standard profit to budgeted profits, popularly known as quantity variance. Thus:

Volume variance = (Budgeted profit – Revised St. profit)

**(d) Mix variance**

The difference between revised standard profit and standard profit is the mix variance. Thus it can be :

Mix variance = (Revised St. Profit – St. profit)

## Problem

John Trading Co. Furnishes the following details for January 2019:

Budgeted Sale | Product | Sales Qty. | Sales Price per unit |

A | 1,200 | 15 | |

B | 800 | 20 | |

C | 2,000 | 40 | |

Actual Price | |||

A | 880 | 18 | |

B | 880 | 20 | |

C | 2,640 | 38 |

**Required:**

Calculate the following variances:

(i) Sales Quantity Variance, (ii) Sales Mix Variance, (iii) Sales Price Variance, (iv) Total Sales Variance

### Solution:

**Basic Calculations**

Product | Budget | Actual | ||||

Qty. (unit) | Rate ($) | Amount ($) | Qty. (unit) | Rate ($) | Amount ($) | |

A | 1,200 | 15 | 18,000 | 880 | 18 | 15,840 |

B | 800 | 20 | 16,000 | 880 | 20 | 17,600 |

C | 2,000 | 40 | 80,000 | 2,640 | 38 | 1,00,320 |

Total | 4,000 | 1,14,000 | 4,400 | 1,33,760 |

**Calculaltion for standard sales**

Product | Actual Qty. (A) | Budgeted Price (B) | Standard Sales ($)(A x B) |

A | 880 | 15 | 13,200 |

B | 880 | 20 | 17,600 |

C | 2,640 | 40 | 1,05,600 |

4,000 | 1,36,400 |

**Calculation for revised standard quantity**

Revised Standard Qty. = (Total AQ / Total SQ) x St. quantity

A = (4,400 / 4,000) x 1,200 = 1,320

B = (4,400 / 4,000) x 800 = 880

C = (4,400 / 4,000) x 2,000 = 2,200

**Calculation for variances**

**(i) Sales value variance**

= Actual sales – Budgeted sales

= 1,33,760 – 1,14,000 = $19,760 (F)

**(ii) Sales price variance**

= (AP – SP) x AQ

A = (18 – 15) x 880 = $2,640 (F)

B = (20 – 20) x 880 = Nil

C = (38 – 40) x 2,640 = $5,280 (A)

Total = $2,640 (A)

**(iii) Sales volume variance**

= (AQ – BQ) – SP

A = (880 – 1,200) x 15 = $4,800 (A)

B = (880 – 800) x 20 = $1,600 (F)

C = (2,640 – 2,000) x 40 = $25,600 (F)

Total = $22,400 (A)

**(iv) Sales mix variance**

= (AQ – RSQ) x SP

A = (880 – 1,320) x 15 = $6,600 (A)

B = (880 – 880) x 20 = Nil

C = (2,640 – 2,200) x 40 = $17,600 (F)

Total = $11,000 (F)

**(v) Sales quantity variance**

= (RSQ – BQ) x SP

A = (1,320 – 1,200) x 15 = $1,800 (F)

B = (880 – 800) x 20 = $1,600 (F)

C = (2,220 – 2,000) x 40 = $8,000 (F)

Total = $11,400 (A)

**Verification**

(i) Sales Value Variance = Price Variance + Volume Variance

19,760 (F) = 2,640 (A) + 22,400 (F)

(ii) Sales Volume Variance = Mix Variance + Quantity Variance

22,400 (F) = 11,000 (F) + 11,400 (F)