LESSON TWELVE

BASIC SALES VARIANCES

BASIC SALES VARIANCES

The purpose of calculating sales variances is to show their effect when a comparison is made
between budget and actual profit. There are two causes of sales variances: a difference in
selling price and a difference in sales volume.
The basic sales variance is therefore composed:
(a) Sales variance
(b) Sales price variance
(c) Sales volume variance

Illustrated 1
Voi Limited has the following data regarding its sales for a Month.
Budgeted sales 1,000 units
Budgeted selling price Kshs 10 per unit
Actual sales 940 units
Actual selling price Kshs 10.50 per unit

(a) Sales Variance (Sales Revenue Variance)

Sales variance is the difference between standard sales revenue and actual sales revenue
Standard Sales Revenue = Budgeted Sales x Budgeted Selling Price
= 1,000 units x Kshs 10 = Kshs 10,000
Actual Sales Revenue = Actual Sales X Actual Selling Price
= 940 units x Kshs 10.50 = Kshs 9,870
Sales Variance = Kshs 10,000 – Kshs 9,870 = Kshs 130 Adverse
Causes of sales variances
 Actual selling price is more or less than budgeted selling price (sales price variance)
 Actual sales volume is larger or smaller than budgeted sales volume (sales volume
variance)
 Actual sales-mix is different from standard sales mix in case of multi-products,
 Actual sales allowance is more or less than budgeted or standard allowance.

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 (b) Sales price variance
This variance shows the effect on profit of selling at a different price from that expected.
This is the difference between Actual Selling Price and Budgeted (standard) Selling Price
multiplied by actual quantity.
Sales price variance = (Actual Selling Price – Standard Selling Price) x Actual Quantity
= (Kshs 10.50 – Kshs 10) x 940 units = Kshs 470 Favourable
Or
Standard Selling Price x Actual Quantity = Kshs 10 x 940 units = Kshs 9,400
Actual Selling Price x Actual Quantity = Kshs 10.50 x 940 units = Kshs 9,870
Sales Price Variance = Kshs 470 Favourable
The variance is favourable because the higher the actual selling price causes an increase in
revenue and a consequent increase in profit.
Causes of unfavorable sales price variance
 Unforeseen market competitive conditions forcing organizations to cut its planned
sales prices.
 Management decisions to try a new distribution channel.
 Management decisions to tap into new markets
 Decisions to offer products at lower prices than standard prices.
 Latitude to allow sales managers to quote lower prices.

(c) Sales Volume Variance

Sales volume variance is the difference in the actual product units sold with that of planned
units given the standard selling price.
Sales Volume Variance = (Actual Volume – Standard Volume) x Standard Selling Price.
= (940 units – 1,000 units) x Kshs 10 = Kshs 600 Adverse
Or
Standard Quantity x Standard Price = 1,000 units x Kshs 10 = Kshs 10,000
Actual Quantity x Standard Price = 940 units x Kshs 10 = Kshs 9,400
Sales Price Variance = Kshs 600 Adverse

The variance is adverse because actual quantity is less than standard quantity.

Sales Variance = Sales Price Variance + Sales Volume Variance

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Kshs 130 Adverse = Kshs 470 Favourable + Kshs 600 Adverse

Causes of sales volume variance

 Unexpected completion
 Ineffective sales promotion
 Ineffective adverting
 Customers meeting adverse business conditions thus unable to take their usual orders.
 Lack of proper supervision and control to sales persons

Click to open to read and watch the material provided on the links to help you explain sales
variances

1. https://www.youtube.com/watch?v=Fl8WWb32i_s

2. https://www.youtube.com/watch?v=46Nl2UPotNc

3. https://www.youtube.com/watch?v=5k7DIzb2_44

4. https://www.yourarticlelibrary.com/accounting/variances-analysis/variance-analysis-
material-labour-overhead-and-sales-variances/52883

Formative assessments
1 Explain the following variances
(a) Sales variance
(b) Sales price variance
(c) Sales volume variance.
2. Limuru Limited has the following data regarding its sales for a Month.
Budgeted sales 2,500 units
Budgeted selling price Kshs 22 per unit
Actual sales 2,400 units
Actual selling price Kshs 20 per unit
Calculate:
(a) Sales variance
(b) Sales price variance
(c) Sales volume variance.

3. Kisumu Limited has the following data regarding its sales for the Month of January.

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 Budgeted sales 5,000 units
Budgeted selling price Kshs 25 per unit
Actual sales 5,200 units
Actual selling price Kshs 26 per unit
Calculate:
(a) Sales variance
(b) Sales price variance
(c) Sales volume variance.

4. Kakamega Limited has the following data regarding its sales for a Month.
Budgeted sales 10,000 units
Budgeted selling price Kshs 25 per unit
Actual sales 11,000 units
Actual selling price Kshs 23 per unit
Calculate:
(a) Sales variance
(b) Sales price variance
(c) Sales volume variance.