All of the variances discussed till now are concerned with costs; the effects on profits due to adverse or favourable variances affecting direct materials, direct labour or overheads. Some companies calculate cost variances only, but to obtain the full advantages of standard costing, many companies also calculate sales variances. Sales variance affect a business in terms of changes in revenue: changes that have been caused either by a variation in sales quantities or in sales prices.There are two distinctly separate systems of calculating sales variances,which show the effect of a change sale as regards:
(i) Sales margin variance (on the basis of profit), and
(ii) Sales value variance (on the basis of turnover) Sales variances based on profit:
(i) Sales margin variance (on the basis of profit), and
(ii) Sales value variance (on the basis of turnover) Sales variances based on profit:
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| Classification of Sales Margin Variances |
The sales variances based on profit are also
called sales margin variances that indicates the deviation between actual profit and standard or budgeted profit.
Total Sales Margin Variance
This variance takes into account the differences between actual profit and standard or budgeted profit.
Total Sales Margin Variance = Actual Profit – Budgeted Profit
or
= [Actual quantity × Actual profit per unit]-[Budgeted quanity of sales ×Budgeted profit per unit]
called sales margin variances that indicates the deviation between actual profit and standard or budgeted profit.
Total Sales Margin Variance
This variance takes into account the differences between actual profit and standard or budgeted profit.
Total Sales Margin Variance = Actual Profit – Budgeted Profit
or
= [Actual quantity × Actual profit per unit]-[Budgeted quanity of sales ×Budgeted profit per unit]
Sales Price Variances
The price variance is the difference between standard price of the quantity of sales affected and the actual price of those sales.Sales Price Variance
= Actual quantity of sales Actual profit per unit -Standard profit per unit
= Actual quantity of sales × Standard price -Atcual quantity of sales × Actual price
Sales Volume Variances
It represents the difference between the actual units sold and the budgeted quantity multiplied by either the standard profit per unit or the standard contribution per unit. In absorption, costing standard profit per unit is used, but in marginal costing, standard contribution per unit must be used.
The price variance is the difference between standard price of the quantity of sales affected and the actual price of those sales.Sales Price Variance
= Actual quantity of sales Actual profit per unit -Standard profit per unit
= Actual quantity of sales × Standard price -Atcual quantity of sales × Actual price
Sales Volume Variances
It represents the difference between the actual units sold and the budgeted quantity multiplied by either the standard profit per unit or the standard contribution per unit. In absorption, costing standard profit per unit is used, but in marginal costing, standard contribution per unit must be used.
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