Sales Price Variance
Sales price variance represents the difference between actual sales dollars and budgeted sales dollars that has occurred because actual price is different from the budgeted price.
Actual sales can differ from budgeted sales either because the company has not been able to sell the budgeted number of units or because the price it received in the market was different what it had expected. The sales price variance quantifies the difference in sales that results from the difference in market price and standard price.
Formula
Sales price variance equals the difference between actual sales at the market price and actual sales at the budgeted price.
Sales Price Variance
= Actual Sales Revenue
– Actual Sales at Budgeted Price
Actual sales is the product of actual units sold and actual price per unit. Similarly, actual sales at budgeted price equals the product of actual units sold and budgeted price per unit.
Sales Price Variance
= Actual Sales Units × Actual Price
– Actual Sales Units × Budgeted Price
Since actual sales unit is the common factor, we can write the formula for sales price variance as follows:
Sales Price Variance
= (Actual Price – Standard Price) × Actual Sales Units
In other words, sales price variance is the product of actual units sold and the difference between actual price per unit and standard price per unit.
Analysis
A positive sales price variance is considered favorable because receiving a higher price than you expected for each unit is a good thing. On the other hand, a negative sales price variance is adverse/unfavorable.
However, we need to dig down before reaching conclusion just based on the favorable sales price variance. For example, a positive sales price variance may arise simply due to inflation or it might be that the sales department charged too high prices. Since the demand curve slopes downward, charging a higher price is bound to reduce units of good sold. Hence, it is good to also look at the sales volume variance.
The responsibility for a lower sales price variance typically lies with the sales department but the lower than anticipated sales price may be caused by, for example, poor quality, poor planning, unrealistic budgeting etc. In such cases, the responsibility lies with the production, budgeting, etc.
Example
Calculate sales price variance using the following information:
Product | x | y | z |
---|---|---|---|
Actual Sales Revenue | 651009 | 419945 | 873344 |
Actual Units | 15508 | 8371 | 7481 |
Standard Price | 40 | 49 | 120 |
Solution
Product | x | y | z |
---|---|---|---|
Actual Sales Revenue | 651009 | 419945 | 873344 |
÷ Actual Units | 15508 | 8371 | 7481 |
Actual Price | 41.97891 | 50.16665 | 116.74161 |
– Standard Price | 40 | 49 | 120 |
Difference | 1.97891 | 1.16665 | -3.25839 |
× Actual Units | 15508 | 8371 | 7481 |
Sales Price Variance | 30689 | 9766 | -24376 |
Total Sales Price Variance | 16079 |
by Irfanullah Jan, ACCA and last modified on