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:

Productxyz
Actual Sales Revenue651009419945873344
Actual Units1550883717481
Standard Price4049120

Solution

Productxyz
Actual Sales Revenue651009419945873344
÷ Actual Units1550883717481
Actual Price41.9789150.16665116.74161
– Standard Price4049120
Difference1.978911.16665-3.25839
× Actual Units1550883717481
Sales Price Variance306899766-24376
Total Sales Price Variance16079

by Irfanullah Jan, ACCA and last modified on

XPLAIND.com is a free educational website; of students, by students, and for students. You are welcome to learn a range of topics from accounting, economics, finance and more. We hope you like the work that has been done, and if you have any suggestions, your feedback is highly valuable. Let's connect!

Copyright © 2010-2019 XPLAIND.com