Sales Volume Variance Definition
Basically, Sales Volume Variance measures the sales performance due to differences between actual products sold during the period compared to budget at the standard price, standard profit or standard contribution.
This variance is quite important as it helps management assess how volume variance adversely affects the company’s performance. We use standard price if we want to assess how the variance affects total sales are.
We use standard profit if we want to assess how the variance affects total profit are, where the marginal cost is using. The standard contribution is used when the marginal cost is using.
Sales Volume Variance Formula
In general, the formula of Sales Volume Variance is
Sales Volume Variance = (Actual units sold – Budgeted units sold) x standard price per unit
Here is the list of Variance Formula you may looking for, Variance Formula
This formula will provide us with the total effect on Total Sales. However, if we want to know how the sales variance affects the profit, we use standard profit (absorption costing) or standard contribution marginal costing).
So, in order to calculate Sales Volume Variance, what you need to know are:
- Actual Units Sold: This is the actual sales performance during the period.
- Budgeted Units Sold: The budget set by top management or board of directors for sale departments or the holding company.
- Standard Price: the standard price calculates by a specific product.
Noted: The calculation should be done product-by-product for a higher level of accuracy.
Sales Volume Variance Example
Here is an easy example, and it only gives you some basics to reflect the formula and definition. In real cases, it is expected to be more difficult. For example, ABC Company has an annual budget sales volume for product A-amount of 100,000 units.
The standard price for this product is $30 per unit. You are the performance management accountant, and you are requested to calculate the Sales Volume Variance of product A. The actual Sale for this product is 90,000 unit
Based on formula
- Sales volume variance = (Actual units sold – Budgeted units sold) x standard price per unit
- Actual Unit Sold = 90,000 units
- Budgeted Unit Sold = 100,000 Units
- Standard Price per unit = $30
Therefore, Sales Volume Variance for product A is (90,000 – 100,000) * 30 = $ 300,000 (Unfavorable variance). In this case, the Sales Volume Variance is unfavorable as the actual sales volume is lower than its budget.
It means that the sales performance of product A is not good. Further investigation probably requires to make sure the performance is justified.
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