Monday, February 22, 2010

Selling price variance

Selling price variance
The selling price variance is a measure of the effect on expected profit of a different selling price to standard selling price. It is calculated as the difference between what the sales revenue should have been for the actual quantity sold, and what it was.

Revenue from 900 units should have been (x $150)        
But was (x $140)
Selling price variance
9,000 (A)
Sales volume variance
The sales volume variance is the difference between the actual units sold and the budgeted quantity, valued at the standard profit per unit. In other words it measures the increase or decrease in standard profit as a result of the sales volume being higher or lower than budgeted.
Budgeted sales volume
1,000 units
Actual sales volume
900 units
Variance in units
100 units (A)
x standard margin per unit (x $ (150 – 102) )       
x $48
Sales volume variance
$4,800 (A)

Don’t forget to value the sales volume variance at standard contribution marginal costing is in use.
Operating Statement
The most common presentation of the reconciliation between budgeted and actual profit is as follows.
                                                 $              $
Budgeted profit before sales and admin costs                                X
Sales variances - price                          X
               - volume                                                   X
Actual sales minus standard cost of sales                                       X
Cost variances                                             $              $
(F)            (A)
Material price                                             X
Material usage etc                                         __                    X
                                               X               X            X
Sales and administration costs                            X
Actual profit                                                             X
Variances in a standard marginal costing system
  • No fixed overhead volume variance
  • Sales volume variances are valued at standard contribution margin (not standard profit margin)

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