Sales Volume Variance

Sales volume variance is the change in revenue or profit caused by the difference between actual and budgeted sales units. 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 by the 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 by the 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 as calculated above is favorable if the value obtained is positive. A negative value is unfavorable indicating that actual units sold were less than budgeted.

Possible causes for unfavorable sales volume variance include stiff competition from outsiders or 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 Units651009419945873344
Budgeted Sales Units650000410000875000
Standard Unit Profit419

Solution

Productxyz
Actual Sales Units651009419945873344
– Budgeted Sales Units650000410000875000
Difference in Units10099945-1656
× Standard Unit Profit419
Sales Volume Variance40369945-14904
Total Sales Price Variance-923

Written by Irfanullah Jan