CAT / FIA FMA Syllabus E. Standard Costing - Sales price and volume variances - Notes 1 / 8
Sales Variances
The sales price variance shows the effect on profit of selling at a different price from that expected.
| sales price variance = | actual units should have sold | $x |
| actual units did sell | $x | |
| ---- | ||
| sales price variance | $x (f/a) | |
| === | ||
| sales volume variance = | budgeted sales volume | x units |
| (absorption costing) | actual sales volume | x units |
| -------- | ||
| sales volume variance in units | x units (f/a) | |
| x standard profit per unit | $x | |
| ------- | ||
| sales volume variance in $ | $x (f/a) | |
| ===== | ||
| sales volume variance = | budgeted sales volume | x units |
| (marginal costing) | actual sales volume | x units |
| ------------ | ||
| sales volume variance in units | x units (f/a) | |
| x standard contribution per unit | $x | |
| ------------ | ||
| sales volume variance in$ | $x (f/a) | |
| ======== |
Illustration - Sales volume variance
Budgeted sales units 8,500
Actual sales units 8,900
Standard contribution $28
Standard profit $10
What is the sales volume variance for absorption and marginal costing?
Solution
For absorption costing
Should sell 8,500
Did sell 8,900
Difference 400 x $10 (standard profit) = $4,000 Favourable Variance (Sold more than should have)
For marginal costing
Should sell 8,500
Did sell 8,900
Difference 400 x $28 (standard contribution) = $11,200 Favourable Variance (Sold more than should have)
Illustration - Sales price variance
Actual sales units 8,900
Actual revenue received $700,000
Standard selling price $100
What is the sales price variance?
Solution
8,900 should sell (8,900 x 100) = $890,000
8,900 did sell $700,000
Sales price variance is $190,000 Adverse (We did sell less than we should have)