Cornerstone Exercise 2.

5 Sales Price Variance, Sales Volume Variance, Overall

Sales Variance

Saginaw Company

Required:

1. Calculate the sales price variance for December.

Sales price variance = (Actual price – Expected price) x Quantity sold

Sales price variance = ($5.20 - $5.30) x 30,600
Sales price variance = $3,060 U

2. Calculate the sales volume variance for December.

Sales volume variance = (Actual volume – Expected volume) x Expected price

Sales volume variance = (30,600 – 30,000) x $5.30
Sales volume variance = $3,180 F

3. Calculate the overall sales variance for December. Explain why favorable /
unfavorable.

Overall sales variance = Sales price variance + Sales volume variance

Overall sales variance = $3,060 U + $3,180 F
Overall sales variance = $120 F

 The overall sales variance for December came out as favorable because the
favorable sales volume variance is larger than the unfavorable sales price
variance. This happened because even if the expected sales price decreased the
revenue, the overall actual volume still overcame the expected one causing the
total revenue to increase.

4. If December sales in bags were actually 29,800, the sales price variance would
decrease because of the decrease in the actual number of bags sold. The sales volume
variance and overall sales variance would became unfavorable because both of the
sales price variance and sales volume variance are unfavorable.