Saturday, December 27, 2008


Sales Variances.

Total sales marginal variances.
The total sales margin variance seeks to identify the influence which the sales function has on the difference between budget and actual profit. The sales function is responsible for the volume and the unit selling price but not the unit manufacturing costs. Therefore the standard cost of sales and not the actual cost of sales is deducted form the actual sales revenue.

Using the standard cost to calculate both the budgeted and actual profit ensures that the production variances do not distort the calculation of the sales variances.

The effect of using standards costs throughout the profit margin calculations mires that the sales variances arise because of changes in those variables which are controlled by the sales function.
  • Selling prices (Sales Margin Price Variance)
  • Sales quantity (Sales Margin Volume Variances)
Sales Margin Price VarianceThe sales margin price variance is the difference between the actual margin and the standard margin (both based on standard unit costs) multiplied by the actual sales volume.
Sales Margin Volume Variance.To ascertain the effect of changes in the sales volume on the difference between the budgeted and the actual profits we must compare the budgeted sales volume with the actual sales volume.
The use of the standard margin (standard selling price less standard cost ensure that the standard selling prices is used in the calculation and the volume variance will not be affected by any changes in the actual selling prices
The sales margin volume variance is the difference between the actual sales volume and the budgeted volume multiplied by the standard profit margin.
Sales mix and quantity variances.If a company sales more than one (1) product, it is possible to analyze the overall sales volume variance into a sales mix variance and a sales quantity variance.
A sales mix variance and a sales quantity variance are only meaningful where management can control the proportions of the product sold.
The Unit Method of Calculation.
There are two methods of calculating sales mix and quantity variances. Using the units method, the sales mix variances is calculated in a very similar way to the materials mix variance, while the sales volume variances is calculated as the difference between the actual sales volume in the budgeted proportions and the budgeted sales volumes, multiplied by the standard margin.
The Revenue Methods of Calculation.There is another method of calculating sales mix and quantity variances which is based on the value of sales rather than on the number of units sold. It is most useful when the unit selling price for each product is very different so that basing the standard mix on the number of units could cause distortions.

It in important to remember two aspects of sales mix and quantity variances by the sales revenue method, which can be a source of great confusion. These are as follows ,
  • Sales mix and quantity variances calculated by the revenue method will be totally different form the variances calculated by the previous (sales units) method. They have completely different meanings.
Variances calculated using the units method should help control the proportion of units sold of each product whereas variances calculated using the revenue method should help control the proportion of revenue obtained form each product.
The numerical value of mix and quantity variances will differ according to the method used.
  • In the revenue method, revenue is measured at standard sales process, not actual sales price. The “actual sales revenue” should be actual sales units at the standard sales price per unit.

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