Chapter 3.

Sales Variances

Course Name : Performance Management

Course Code : BAAC 4207
Specialization : Accounting And Finance
College of Economics and Business Studies (Muscat Branch)
U n i v e r s i t y o f Te c h n o l o g y a n d A p p l i e d S c i e n c e s
Chapter 3 – Variance Analysis

Learning Outcomes
Explain the uses of Standard costs and the methods used for deriving
them.

Identify the causes of Variances.

Explain and calculate the various variances like Material mix and Yield
variances, Sales mix and Quantity variances, Planning and Operational
variances.
CONTENTS

Meaning of Variance Analysis

 Introduction to Sales Variances

 Sales Variances (Sales Value Method)

 Sales Variances (Sales Margin or Profit Method)

Essential Reading :
Madegowda, J.. Management Accounting, Global Media, 2006.
ProQuest Ebook central,
http://ebookcentral.proquest.com/lib/hctom/detail.action?docID=3011261
Periasamy, P.. Textbook of Financial Cost and Management Accounting,
Global Media, 2009. ProQuest Ebook Central,
http://ebookcentral.proquest.com/lib/hctom/detail.action?docID=3011183
 Sales Variances
Meaning of Variance Analysis:

A variance is the deviation of actual from standard. Variance analysis is

the quantitative investigation of the difference between actual and

planned behavior. The primary objective of variance analysis is to

exercise cost control and cost reduction. Even though there are various

types of variances like materials, labor, overheads and sales, in this

chapter the focus is to study about Sales variances.

Introduction to Sales variances:
A Sales variance is the monetary difference between actual and budgeted

sales. It is used to analyze changes in sales levels over time. Companies

analyze sales variances on a monthly , quarterly or yearly basis to explain

revenue performance. The resulting sales variances help a firm to identify

the problems and gear up their future sales and marketing efforts towards

increased sales growth.

Sales Variances can be calculated by Two methods:
A. Sales Value Method.
B. Sales Margin or Profit Method.
 A. Sales Value Method
The method of computing sales variance is used to denote variances arising due to
change in sales price, sales volume or the sales value. The sales variances may be
classified as follows :

a) Sales Value Variance

b) Sales Price Variance

c) Sales Volume Variance

d) Sales Mix Variance

e) Sales Quantity Variance

a) Sales Value Variance: This Variance refers to the difference
between budgeted sales and actual sales.
• It may be calculated as follows:

Sales Value Variance = Actual Value of Sales - Budgeted Value of Sales

• Note: If the actual sales is more than the budgeted sales, the variance
will be favourable and vice versa.
b) Sales Price Variance: This is the portion of Sales Value Variance
which is due to the difference between standard price of actual quantity
and actual price of the actual quantity of sales.
• The formula is:

• Sales Price Variance = Actual Quantity x (Actual Price - Standard Price)

• Note: If the actual price is more than standard price the variance is
favourable and vice versa.
(c) Sales Volume Variance: It is that part of Sales Value Variance which is
due to the difference between the actual quantity or volume of sales and
budgeted quantity or volume of sales.
• The variance is calculated as:

Sales Volume Variance = {Actual Quantity - Budgeted Quantity of Sales} x

Standard Price of Sales

• Note: If the actual quantity sold is more than the budgeted quantity or
volume of sales, the variance is favourable and vice versa.
(d) Sales Mix Variance: It is that portion of Sales Volume Variance
which is due to the difference between the standard proportion of sales and
the actual composition or mix of quantities sold.
• In other words it is the difference of standard value of revised mix and
standard value of actual mix: It is calculated as :

Sales Mix Variance = {Standard Value of Actual Mix - Standard Value of

Revised Standard Mix}
Standard value of actual mix = AQ x SP
Standard value of revised standard mix = ( ) x SP
(e) Sales Quantity Variance: It is a sub variance of Sales Volume
Variance. It is that portion of Sales Volume Variance which is due to the
difference between the revised standard quantity of sales and budgeted
sales quantity. The formula for the calculation of this variance is :

Sales Quantity Variance = {Revised Standard Sales Quantity - Budgeted

Sales Quantity} x Standard Selling Price

• Note: If the Revised Standard Quantity is greater than the standard

quantity, the variance is favourable and vice versa.
A. Sales Value Method
Problem 1
• From the following information given about standard and actual sales,
you are required to calculate Sales Variances.
Standard Qty. Sales Price in Actual Qty. Sales Price in
Units OMR Units OMR
X 250 2.50 250 2.50
Y 200 3.00 300 3.25
Z 150 3.50 200 3.75
TOTAL 600 750
• Solution:
(1) Sales Value Variance = Actual Value of Sales - Standard Value of Sales
X = (250 x 2.50) - (250 x 2.50) = 625 - 625 = Nil
Y = (300 x 3.25) - (200 x 3) = 975 - 600 = 375 (F)
Z = (200 x 3.75) - (150 x 3.50) = 750 - 525 = 225 (F)
Total Sales Value Variance = 375 (F) + 225 (F) = 600 (F)
(2) Sales Price Variance = Actual Quantity Sold x (Actual Price - Standard
Price)
X = 250 (2.50 - 2.50) = Nil
Y = 300 (3.25 - 3) = 75 (F)
Z = 200 (3.75 - 3.50) = 50 (F)
Total Sales Price Variance = 75 (F) + 50 (F) = 125 (F)
(3) Sales Volume Variance = Standard Price x (Actual Quantity - Standard Quantity)
X = 2.50 (250 - 250) = Nil
Y = 3 (300 - 200) = 300 (F)
Z = 3.50 (200 - 150) = 175 (F)
Total Sales Volume Variance = OMR 300 (F) + OMR 175 (F) = OMR 475 (F)

(4) Sales Mix Variance: There is a difference between standard quantity and actual
quantity so the standard will be revised in proportion to actual quantity of sales.
X = 250 ÷ 600 x 750 = 312.50
Y = 200 ÷ 600 x 750 = 250 600
Z = 150 ÷ 600 x 750 = 187.50
Sales Mix Variance = Standard Value of Actual Mix - Standard Value of Revised
Standard Mix
Standard Value of Actual Mix
X = 250 x 2.50 = 625
Y = 300 x 3 = 900
Z = 200 x 3.50 = 700
2225(F)
Standard Value of Revised Standard Mix
X = 312.50 x 2.50 = 781.25
Y = 250 x 3 = 750.00
Z = 187.50 x 3.50 = 656.25
2187.50
Sales Mix Variance = 1750 - 2187.50 = 37.5 (F)
Problem 2
• The following particulars are available in respect of the working of
company for particular period.

Product Budgeted Actual

Quantit Price Amount Quantit Price Amount
y (OMR) (OMR) y (OMR) (OMR)
(units) (units)
A 1,000 2 2,000 1,800 2.50 4,500
B 3,000 2 9,000 4,200 2.75 11,550
4,000
• You are required 11,000
to calculate : 6,000 16,050

• (1) Total Sales Volume Variance (2)Sales price Variance (3) Sales Mix
Variance and (4) Sales Quantity Variance
Problem 3
• PH Ltd., furnishes the following information relating to budgeted sales and
actual sales for April.
PRODUCT SALES SELLING PRICE PER
QTY(UNITS) UNIT (OMR)
Budgeted Sales A 1,200 15
B 800 20
C 2,000 40
Actual Sales A 880 18
B 880 20
C 2,640 38

• Calculate the (i) Sales Quantity Variance (ii) Sales-Mix Variance (iii) Sales
Price Variance and (iv) Total Sales Variance.
Problem 4
• The budgeted and actual sales of a concern manufacturing a single product
are given below:
• Sales as budgeted 10,000 Units @ OMR 3 Per Unit OMR 30,000
• Actual Sales
• 5,000 Units @ OMR 3 Per Unit OMR 15,000
• 8,000 Units @ OMR 2.50 Per Unit OMR 20,000
• Ascertain Sales Price Variance and Sales Volume Variance
Problem 5
Budgeted and actual sales for the month of December 1984 of two products A and B
of Messers XY Ltd., were as follows.
Product Budgeted ACTUAL
Units Price/Units Units Price/ Units
A 6,000 5.00 5,000 5.00
1,500 4.75
B 10,000 2.00 7,500 2.00
1,750 1.90

Budgeted costs for products A and B were OMR. 4.00 and OMR.1.50 per unit
respectively, Work out from the above data the following variances:
a) Sales Value Variance b) Sale Volume Variance c) Sales Price Variance d) Sales
Mix Variance e) Sales Quantity Variance
Problem 6
• Arena Manufacturers operate Budgetary Control and Standard Costing Systems. The
following information is available for the month of March 2022 from their books.

Budgeted Sales Actual Sales

Std. Cost of Std. Selling
Product Sales Per Unit Price Per Units to be Value in Value in
OMR Unit OMR Units Sold
Sold OMR OMR

E 100 120 100 12000 100 11000

F 94 120 50 6000 50 6000
G 75 90 100 9000 200 17000
H 40 60 75 4500 50 3000
Total 325 31500 400 37000
From the above data, calculate Sales Variances using Value method.
 B. Sales Margin or Profit Method

• Under this method of variance analysis, variances may be computed to show

the effect on profit. The sales variance according to this method can be
classified as follows :
1) Sales Margin Value Variance
2) Sales Margin Price Variance
3) Sales Margin Volume Variance
4) Sales Margin Mix Variance
5) Sales Margin Quantity Variance
(1) Sales Margin Value Variance: This is the difference between the actual value
of sales margin and budgeted value of sales margin. It is calculated as
follows:
Sales Margin Value Variance = Actual Profit - Budgeted Profit (or) = {Actual
Quantity Sold x Actual Profit Per unit} - {Budget Sales Quantity x Budgeted Profit
per unit}

Note: If the actual profit is more than budgeted profit the variance
is favourable and vice versa.
(2) Sales Margin Price Variance: This variance is the difference between
the standard price of the quantity of the sales effected and the actual price
of those sales. It is calculated as follows :

Sales Margin Price Variance = {Actual Profit Per Unit - Budgeted

Profit Per Unit } x Actual Quantity Sold (or) (AP-SP)x AQ

Note: If the actual profit is greater than the standard profit. the variance is
favourable and vice versa.
(3) Sales Margin Volume Variance: It is that portion of Total Sales Margin
Variance which is due to the difference between budgeted and actual
quantity sold. The formula is as follows:

Sales Margin Volume Variance = {Actual Quantity - Standard

Quantity} x Standard Profit

Note: If the actual quantity is more than standard quantity. The variance
is favourable and vice versa.
(4) Sales Margin Mix Variance: This is that portion of the Sales Margin
Volume Variance which is due to the difference between the actual and
budgeted quantities of each product of which the sales mixture is composed
valuing the difference of quantities at standard margin. Thus, this variance
arises only where more than one product is sold. It is calculated as follows:

Sales Margin Mix Variance = {Actual Quantity - Revised Standard

Quantity} x Standard Profit Per Unit
Note: If the actual quantity is greater than the revised standard quantity,
the variance is favourable and vice versa.
(5) Sales Margin Quantity Variance: This is that portion of the Sales Margin
Volume Variance which is due to the difference between the revised standard
quantity of sales and budgeted sales quantity. It is calculated as follows:

Sales Margin QuantityVariance = {Revised Standard Quantity – Standard

Quantity} x Standard Profit Per Unit

Note: If the Revised Standard Quantity is greater than the standard quantity,
the variance is favourable and vice versa.
Problem 7
From the following details, calculate Sales Margin Variance

Product Budgeted Actual

Qty. in Units Sales Price in Qty. in Units Sales Price in
OMR OMR
X 300 46 400 50
Y 500 28 450 26
The cost per unit of product X and Y was OMR 45 and OMR 20
respectively.
Solution:
(1) Total Sales Margin Value Variance = Actual Profit - Budgeted Profit
(or)
= { Actual Quantity x Actual Profit Per Unit } - { Budgeted Quantity x
Budgeted Profit per Unit}
Actual Profit Per Unit = Actual Sales Price - Standard Cost
Product X = 50 - 45 = OMR 5
Product Y = 26 - 20 = OMR 6

Budgeted Profit Per Unit = Budgeted Sales Price - Standard Cost

Product X = 46 - 45 = OMR 1
Product Y = 28 - 20 = OMR 8
• Actual Profit = Actual Quantity x Actual Profit Per Unit
Product X = 400 x OMR 5 = OMR 2,000
Product Y = 450 x OMR 6 = OMR 2,700
Actual Profit = OMR 4,700
Budgeted Profit = Budgeted Quantity x Budgeted Profit Per Unit
Product X = 300 x OMR 1 = OMR 300
Product Y = 500 x OMR 8 = OMR 4,000
Budgeted Profit = OMR 4,300
Sales Margin Value Variance = 4,700 - 4,300 = 400 (F)
(2) Sales Margin Price Variance = (Actual Price - Standard Price) x Actual
Quantity
Product X = (50 - 46) x 400 = 4 x 400 = 1600 (F)
Product Y = (26 - 28) x 450 = 2 x 450 = 900 (A)
Sales Margin Price Variance = 1600 (F) + 900 (A) = 700 (F)

(3) Sales Margin Volume Variance = (Actual Quantity - Standard Quantity)

x Standard Profit Per Unit
Product X = (400 - 300) x OMR 1 = 100 x OMR 1 = 100 (F)
Product Y = (450 - 500) x OMR 8 = 50 x OMR 8 = 400 (A)
Sales Margin Volume Variance 100 (F) + 400 (A) = 300 (A)
• Verification:
Total Sales Margin Value Variance = Sales Margin Price Variance + Sales
Margin Volume Variance
400 (F) = 700 (F) + 300 (A)
400 (F) = 400 (F)
(4) Sales Margin Mix Variance = (Actual Quantity – Revised Standard
Quantity) x Standard Profit Per Unit
Product X = (400 – 318.75) x 1 = 81.25 (F)
Product Y = (450 – 531.25) x 8 = 650 (A)
Sales Margin Mix Variance 81.25 (F) + 650 (A) = 568.75 (A)
(5) Sales Margin Quantity Variance = (Revised Standard Quantity-
Standard Quantity) x Standard Profit Per Unit
Product X = (318.75 - 300) x 1 = 18.75 (F)
Product Y = (531.25 - 500) x 8 = 250 (F)
Sales Margin Mix Variance 18.75 (F) + 250 (F) = 268.75 (F)

Verification:
Total Sales Margin Volume Variance = Sales Margin Mix Variance +
Sales Margin Quantity Variance
300 (A) = 568.75 (A) + 268.75 (F)
300 (A) = 300 (A)
Problem 8
Compute the following variances from the data given below:
1. Total sales margin variance 2. Sales Margin volume variance 3. Sales
Margin price variance 4. sales margin quantity (sub volume) variance 5.
Sales margin mix variance
Product Budgeted Actual Budgeted Actual sale Standard cost
Quantity (units) quantity sale price per Price per unit per
(units) unit OMR Unit
OMR OMR
X 240 400 50 45 30
Y 160 200 25 20 15
 Practice questions: Problem based learning activities-
Problem 9
From the following information relating to the month of January 2022, you
are required to compute Sales Margin Variances:
Budgeted Sales Actual Sales
Product Price in Value in Price in
Qty. Qty. Value in OMR
OMR OMR OMR
X 2500 4 10000 2000 4 8000
600 3.75 2250
Y 3000 2 6000 2500 2 5000
350 1.80 630
Total 5500 16000 5450 15880

Budgeted Costs: X OMR 3 per unit and Y OMR 1.50 per unit
Problem 10
From the following information relating to the month of January 2022, you are
required to compute Sales Margin Variances:

PRODUCT BUGETED SALES ACTUAL ACTUAL

UNITS PRICE/UNIT UNITS PRICE/UNIT
OMR OMR
X 6000 5.00 5000 5.00
1500 4.75
Y Costs: X OMR
Budgeted 100004 per unit and Y2.00
OMR 1.50 per unit7500 2.00
1750 1.90

• Budgeted Costs: X OMR 4 per unit and Y OMR 1.50 per unit
 Contact Details:
1. Dr. T V V Phani Kumar
Office No. BS 047
Ext : 5216
[email protected]

2. Dr. Rathna Chellappa,

UTAS, Salalah campus,
Office No.BIB112
Ext: 152
[email protected]
Version No Date Approved Changes incorporated
01 Sem. 3, 2021-22