Sales Price Variance

Sales price variance is the difference between the actual total price of goods sold and the standard total price of actual sales. Standard total price equals actual units sold multiplied by budgeted price per unit. Sales price variance is the change in revenue of a product caused only due to variation in price.

Formula

Sales Price Variance
= Actual Sales Revenue
– Actual Sales at Budgeted Price

OR

Sales Price Variance
= Actual Sales Units × Actual Price
– Actual Sales Units × Budgeted Price

OR

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

In general, a positive sales price variance is considered favorable indicating that higher than anticipated price resulted in more sales. A lower value is unfavorable. Positive sales price variance may simply be caused by inflation or it may be due to better sales price realization by sales department. A higher value is not always beneficial for the business as a whole. Sales price variance may be artificially inflated by charging higher and higher price per unit but doing so will likely reduce the total number of units sold and may result in lower total sales.

The responsibility for a lower price variance typically lies on sales department but the lower than anticipated sales price may be caused by, for example, poor quality product, poor planning, unrealistic budgeting etc. In such cases, the responsibility lies on the respective departments.

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

Written by Irfanullah Jan