Page 195 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes 2. The price variance may be due to two courses of action, which are as follows:

(a) Cost effectiveness strategy and
(b) Distinctiveness Strategy.
Sales Volume Variance

It is one of the elements of sales variance, which is in between the actual sales quantity and
budgeted sales quantity. The variance is normally expressed in terms of price, i.e. standard price.
The purpose of expressing the variance in terms of standard price is that price which is free from
market forces.
Sales Volume Variance = Standard Price (Actual Quantity of Sale – Standard Quantity of
Sales)
The sales volume variance can be divided into two different streams that sales mix variance and
sales quantity variance/sub-usage variance.

1. Sales Mix Variance: It is the difference in between the actual sales and standard sales mix.
This variance will arise only due to change in the proportion of goods sold. This is a most
important variance usually computed/calculated, at the moment, the firm which deals

more than one commodity.
If both, the standard and actual mixes are equivalent to each other, there will not be any
mix variance in between the above mentioned.
If the mixes are totally different from each other, the sales mix variance is to be computed,
through the development of revised standard mix of quantities with reference to actual
quantities sold, then only the comparison will be meaningful to study the variances
occurred in between above mentioned. The sales mix variance is expressed in between
two different quantities and finally should be denominated in terms of standard price. The

reason for the expression in terms of standard price is the price which is totally free from
the demand and supply forces of the market.
Sales Mix Variance = Standard Price (Actual Quantity – Revised Standard Quantity)
2. Sale Sub-usage Variance: It is another component of usage variance, which expresses the
deviation in between the revised standard quantity to the tune of actual quantities sold and
the early set standard quantities expected to sell.
This variance also elucidates the differences of the above mentioned only in terms
of standard price, which is the ideal indicator free from the market forces i.e free from
fl uctuation.
Sales Sub-usage Variance = Standard Price (Revised Standard Quantity – Standard
Quantity).

Example:

Product Budgeted Actual
Qty Price (` ) Qty Price (` )
A 400 30 500 31
B 200 25 100 24
Calculate the various types of sales variances.

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