Changes in price and sales volume give rise to sales variances. There are two ways to calculate sales variances: Several variants of the turnover method exist, namely: (a) Value variance This is the difference between budgeted sales and actual sales. (b) Volume variance This is the variation represented by the total sales (i.e., the difference between standard sales and actual sales). Thus: Volume variance = (Budgeted sales - Actual sales) (c) Quantity variance Sometimes, standard sales differ from budgeted sales. This is known as quantity variance. It can be expressed as follows: Quantity variance = (Budgeted sales - Revised standard sales) (d) Mix variance This is popularly known as the difference between revised standard sales and standard sales. It shows that the actual mix of sales has not been in the same ratio as was specified in budgeted sales. Mix variance is expressed as follows: Mix variance = (Revised standard sales - Standard sales) The profit method of calculating sales variances also has several variants, namely: (a) Value variance This difference is calculated based on the difference in budgeted profit and actual profit. It is calculated as: Value variance = (Budgeted profit - Actual profit) (b) Price variance Price variance concerns the difference between standard profit and actual profit. This type of variance is the same as price variance in the turnover technique. It is assumed that price change will influence turnover and profit equally. Thus: Price variance = (Standard profit - Actual profit) (c) Volume variance Volume variance concerns the difference in profit calculated from standard profit to budgeted profits. It is popularly known as quantity variance. It is calculated as follows: Volume variance = (Budgeted profit - Revised standard profit) (d) Mix variance The difference between revised standard profit and standard profit is the mix variance, which is calculated as: Mix variance = (Revised standard profit - Standard profit) The details below are from John Trading Co. for January 2024. Required: Calculate the following variances: Basic calculations: Calculations for standard sales: 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 (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 = $11,400 (A) Verification (i) Sales Value Variance = Price Variance + Volume Variance 19,760 (F) = 2,640 (A) + 22,400 (F) (ii) Sales Volume Variance = Mix Variance + Quantity Variance 22,400 (F) = 11,000 (F) + 11,400 (F)What Are Sales Variances?
1. Turnover Method
2. Profit Method
Problem
Budgeted Sales
Product
Sales Qty.
Sales Price per Unit
A
1,200
15
B
800
20
C
2,000
40
Actual Price
A
880
18
B
880
20
C
2,640
38
Solution
Product
Budget
Actual
Qty. (unit)
Rate ($)
Amount ($)
Qty. (unit)
Rate ($)
Amount ($)
A
1,200
15
18,000
880
18
15,840
B
800
20
16,000
880
20
17,600
C
2,000
40
80,000
2,640
38
100,320
Total
4,000
114,000
4,400
133,760
Product
Actual Qty. (A)
Budgeted Price (B)
Standard Sales ($) (A x B)
A
880
15
13,200
B
880
20
17,600
C
2,640
40
105,600
4,000
136,400
Calculations for revised standard quantity:
Calculation for variances
How to Compute Sales Variances FAQs
A sales variance refers to the difference between actual and standard sales. It tells us if the company has been able to achieve its targets or not. If actual sales are higher than standard sales, it implies that the company has done better than expected. On the other hand, a low sales variance would indicate poor performance as the company has not been able to achieve the expected sales figures.
A sales value variance, also known as a budgeted profit variance, concerns the difference in budgeted and actual cost of production. It is calculated by subtracting Standard Costs from actual costs, which gives us the net impact on profit.
A sales mix variance concerns the difference between standard profit and actual profit, which is caused by changes in the product's Contribution Margin. It can be calculated as: sales mix variance = (revised standard profit – standard profit) x actual quantity
A sales price variance refers to the difference between standard profit and actual profit because of changes in pricing. It is calculated by subtracting actual costs from Standard Costs, which gives us the net impact on profit caused by variations in prices. This can be calculated as: sales price variance = (standard profit – actual profit) x standard quantity.
A sales volume variance refers to the difference between standard profit and actual profit because of changes in quantities. It can be calculated by subtracting Standard Costs from actual costs, which gives us the net impact on profit caused by variations in volume. This can be calculated as: sales volume variance = (Standard Cost – actual cost) x standard quantity.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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