Cost Accounting

Types of Sales Variances

Sales variance is the difference between the standard or expected revenue and the actual revenue. There are two factors that might have caused the total variance: either a difference in the number of units that were sold or in the selling price.

Because two different factors are affecting the total sales variance, they must be divided into the following 2 types:

1. Sales volume variance: This is the difference between the standard number of units sold and the actual number of units sold valued at the standard selling price.
2. Sales price variance: This is the difference between the actual number of units sold at the actual selling and at the standard selling price.

The following are the formulas for calculating each of these variances:

1. Sales volume variance:

Standard selling price x (Actual number of units sold – Standard number of units sold)
2. Sales price variance:

Actual number of units sold x (Actual selling price – Standard selling price)
3. Total sales variance:

Sales volume variance + Sales price variance

For example, the following information is given about a product:

• Actual number of units sold: 4800
• Standard number of unit sold: 5000
• Actual sales at standard selling price: \$192,000
• Actual sales at actual selling price: \$187,200
• Actual selling price: \$39
• Standard selling price: \$40

The sales volume variance = \$40(4800 – 5000) = \$8000 adverse (as the actual sales volume was lower than the standard sales volume)

The sales price variance = \$187,200 – 192,000 = \$4800 adverse

The direct material cost variance = \$12,00 adverse