CIMA P1 Syllabus A. Cost Accounting For Decision And Control - Sales Price And Volume Variance - Notes ^{7 / 12}

The sales price variance shows the effect on profit of selling at a different price from that expected.

The sale 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.

The sales volume profit variance is the difference between the actual units sold and the budgeted (planned) quantity, valued at the standard profit (under absorption costing) or at the standard contribution (under marginal costing) 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 (planned).

Possible causes of sales variances

• unplanned price increases

• unplanned price reduction to attract additional business

• unexpected fall in demand due to recession

• increased demand due to reduced price

• failure to satisfy demand due to production difficulties

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)