Standard Costing

Sales Variances

Sales Variances

Abbreviations:

• SQ = Standard Quantity (budgeted sales volume)
• AQ = Actual Quantity (actual sales volume)
• SP = Standard Price (budgeted selling price per unit)
• AP = Actual Price (actual selling price per unit)

Formulas

Key notes:

• Total variance = price variance + volume variance
• For price variance: quantity held constant at AQ
• For volume variance: price held constant at SP
• Direction is opposite to cost variances: in a sales reconciliation, favourable variances are added (more income) and adverse variances are deducted (less income)

Worked example

ABC Ltd for August:

Total variance:   (500 × 125.50) − (600 × 122.75) = 62 750 − 73 650 = £10 900 F

Price variance:   (600 × 125.50) − (600 × 122.75) = 75 300 − 73 650 = £1 650 A
                  or: 600 × (125.50 − 122.75) = 600 × 2.75 = £1 650 A
                  (Adverse: charged £2.75 less per unit)

Volume variance:  (500 × 125.50) − (600 × 125.50) = 62 750 − 75 300 = £12 550 F
                  or: 125.50 × (500 − 600) = 125.50 × 100 = £12 550 F
                  (Favourable: sold 100 more units)

Sales reconciliation statement

Check: 10 900F = 1 650A + 12 550F ✓

Important: the direction rule for sales is opposite to costs. For cost reconciliations, F variances are deducted and A variances are added. For sales reconciliations, F variances are added and A variances are deducted.