Sales Volume Variance

Sales volume variance is the change in revenue or profit caused by the difference between actual and budgeted sales units. In other words, whether more or less than budgeted units have been sold. It is calculated using two varying approaches as discussed below.

In order to reconcile actual and budgeted revenue, sales volume variance is calculated as a product of:

  • standard price per unit, and
  • difference of actual and budgeted sales units

However, if the intention is to reconcile actual and budgeted profit, sales volume variance is calculated as a product of:

  • standard profit per unit, and
  • difference of actual and budgeted sales units

In case of marginal costing we use standard contribution per unit in place of standard profit per unit.

Formulas

For revenue reconciliation:

Sales Volume Variance
= (Actual Sales Units – Budgeted Sales Units) × Standard Unit Price

For profit reconciliation (absorption costing):

Sales Volume Variance
= (Actual Sales Units – Budgeted Sales Units) × Standard Unit Profit

For profit reconciliation (marginal costing):

Sales Volume Variance
= (Actual Sales Units – Budgeted Sales Units) × Standard Unit Contribution

Analysis

Sales volume variance is favorable when actual units sold exceed the budgeted unit sales and it is unfavorable or adverse if units sold are less than the budgeted unit sales.

Sales volume variance if calculated using the above formulas is favorable if the result value obtained is positive and vice versa.

Possible causes of unfavorable sales volume variance include stiff competition from outsiders or from another product by the company itself, poor quality product, higher sales price variance, unrealistic budgeted sales units etc.

Example

Calculate sales volume variance using the following information:

Productxyz
Actual Sales Units651,009419,945873,344
Budgeted Sales Units650,000410,000875,000
Standard Unit Profit4.001.009.00

Solution

Productxyz
Actual Sales Units651,009419,945873,344
– Budgeted Sales Units650,000410,000875,000
Difference in Units1,0099,945-1,656
× Standard Unit Profit4.001.009.00
Sales Volume Variance4,0369,945-14,904
Total Sales Price Variance-923

Written by Irfanullah Jan and last modified on