Page 173 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes Figure 8.2: Analysis of Sales Variances

Sales Value Variance

Price Variance Volume Variance

Mix Variance Quantity
Variance

8.2.1 Sales Variance Method

In this method, the variances are computed on the basis of sales value. This method gives the
sales manager, the effect of various factors affecting total sales value such as: price, quantity and
sales mix.
Total sales value variance “Difference between actual sales value and budgeted sales value: The
variance can be bifurcated into sales price variance and sales volume variance. Sales price
variance: (Actual Unit Price – Budgeted Unit Price)  Actual Qty. in Units
It can also be calculated by finding out the variance from the flexible budget i.e., difference
between actual result and the flexible budget amounts for the actual output achieved,
Sales volume variance can be calculated by the following formula:
Budgeted Price × Difference between actual quantity and budgeted quantity.
It can be calculated by finding out the difference between the flexible budget amounts and the
static (master) budget amounts, unit selling price remaining constant.

Notes In case of a multi-product situation, the actual sales mix may be different from the
budgeted sales mix, a possible reason for this being that salesman may have concentrated
on their favourite products and therefore sold larger quantities of such products than as
envisaged in the budget.
In case of a multi-product situation, the volume variance can be further analysed in terms of a
sales mix variance and a quantity variance. The same approach can be used to analyse a territory-
wise sales performance report. If in a particular sales district, there is a very high variance, it
needs to be analysed further to understand the causes underlying, the symptoms reflected by
high variances.

8.2.2 Sales Mix Variance

(Actual Sales Quantity in Actual Mix – Actual Sales Qty. in Budgeted Mix)  Budgeted price per
unit.
It can be calculated by the difference between the amount of sales value in flexible budget based
on actual sales volume at actual sales mix and that amount in the flexible budget based on actual
sales volume at budgeted mix based on budgeted selling prices.

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