Page 244 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 11: Variance Analysis

11.5.1 Sales Values Variance Notes

The name of the variance is self explanatory in explaining the meaning of the variance, that is
difference in between the actual value of sales and standard value of sales.
The causes/influences of sales value variance are many more and some of them highlighted for
easy understanding about overall picture.
1. The fluctuation in the selling price may lead to variance with the standard selling price —
Selling Price Variance.
2. The fluctuation in the actual volume of sales may be due to various factors, mainly the
preference of the buyers over the standard/budgeted volume of sales — Sales Volume
Variance.
3. Actual mix of various varieties may differ from the standard mix, which leads — Sales mix
variance
4. Revised standard sales quantity may be varied from the budgeted sales quantity — Sales
quantity/Sub-usage variance

Sales Value Variance = Actual Value of Sales – Standard Value of Sales
The decision criterion is that more the actual sales volume leads to greater and better the
position of the firm than the budgeted sales volume, which leads to favourable position for the
firm and vice versa.

11.5.2 Sales Price Variance

It is one of the components as well as influences of the sales variances. It is the variance in
between two different prices viz. actual price and standard price of the products.
The variance can be computed as follows:
Sales Price Variance = Actual Quantity sold (Actual Price – Standard Price)
The price variance should be finally expressed in terms of the actual number of goods sold. The
main aim of expressing them in actual quantity of goods sold is to express the variance in terms
of actual performance in units.
The price variation may be due to many reasons
1. The price variance may be due to changes taken place in the structure of competition. The
nature of competition changes due to market potential for example monopoly to duopoly;
duopoly to perfect competition and so on; leads to change in the structure of pricing in
order to retain the consumer base in line with the business.

2. The price variance may be due to two courses of action, which are as follows:
(a) Cost effectiveness strategy and (b) Distinctiveness Strategy.

11.5.3 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)

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