Revenue Variance

Analysis

Sales Variances
(1) Sales Price Variance
(2) Sale Volume Variance
In the case of a single-product firm, SPV and SVV
together will account for total SRV. However, in the
case of multi-product firms, it is necessary to have a
break-up of sales volume variance into two sub-
variances:
(a) Sales Mix Sub-variance
(b) Sale Volume Sub-variance

1
 Sales Revenue Variance
Sales revenue variance is the difference between the standard sale value
and the actual sale value.
SRV = SSV – ASV (unfavourable)
SRV = ASV – SSV (favourable)
The chief causes responsible for SRV may be one or more of the following:
(1) Actual sales prices are more or less than budgeted sales price (Sales
price variance).
(2) Actual sales volume is larger or smaller than budgeted sales volume
(Sales volume variance).
(3) Actual sales-mix is different from the standard sales-mix originally
envisaged in the budget (Sales-mix variance). Such a variance will
result only in the case of multi-product manufacturing and selling
companies.
(4) Actual sales allowance is more or less than the budgeted/standard
allowance.

Sales Price Variance

The sales price variance (SPV) is a sub-variance of SRV. This
variance, like material price variance, is obtained by the
difference between actual selling price (ASP) and standard
selling price (SSP) multiplied by actual units (AQ) sold.
SPV = (ASP – SSP) × AQ (favourable)
SPV = (SSP – ASP) × AQ (unfavourable)

2
 The possible reasons for unfavourable sales price variance are as follows
1) Unforeseen market competitive conditions forcing the organisation to cut
its planned sales price.
2) Management decisions to try new marketing strategies in terms of
changing the channel of distribution from retailers followed hitherto to
wholesalers.
3) Management decisions to tap new markets, and decisions to offer
products at lower than standard prices. This may particularly hold true for
export markets, and large tenders from reputed business units, or
government departments having prospects of a perpetual source of
demand in the future.
4) Latitude allowed to individual sales managers or sales people in quoting
prices.
In the case of multi-product firms, the SPV is to be determined for each line
of the product sold.

Sales Volume Variance

Sales volume variance (SVV) emanates from the difference in the actual
product units sold and the planned sales of product units. The formula for
determining SVV can be stated as follows:
SVV = [(Actual volume (AQ) – Standard volume (SQ)] × Standard selling
price (favourable)
SVV = (SQ – AQ) × Standard selling price (unfavourable)
The following reasons can contribute to SVV:
1) Unexpected competition,
2) Ineffective sales promotion,
3) Ineffective advertising,
4) Customers meeting adverse business conditions, thus, unable to take
their usual order, and
5) Lack of proper supervision and control of salesmen.

3
 Example 2
Hypothetical Ltd budgets to sell in the first quarter of the current year, 500 units of
product X at Rs 30 per unit, 400 units of product Y at Rs 20 per unit, and 100 units
of product Z at Rs 50 per unit. During the quarter, actual sales were as follows:
— 400 units of product X at Rs 40 per unit.
— 500 units of product Y at Re 10 per unit.
— 50 units of product Z at Rs 40 per unit.
You are required to determine all sales variances.

Solution
Determination of Sales Variances (SRV)
Product Standard Actual
Quantity Price (SSP) Total Quantity Price Total
(SQ) (units) sales (AQ) (units) (ASP) sales
X 500 Rs 30 Rs 15,000 400 Rs 40 Rs 16,000
Y 400 20 8,000 500 10 5,000
Z 100 50 5,000 50 40 2,000
1,000 28 28,000 950 23,000

SRV = (TSV – ASV) = Rs 28,000 – Rs 23,000 = Rs 5,000 (unfavourable)

SPV = (ASP – SSP) × AQ
X: (Rs 40 – Rs 30) × 400 units = Rs 4,000 (favourable)
Y: (Re 10 – Rs 20) × 500 units = 5,000 (unfavourable)
Z: (Rs 40 – Rs 50) × 50 units = 500 (unfavourable)
Total SVP = 1,500 (unfavourable)
SVV = (AQ – SQ) × Standard selling price
X: (400 – 500) × Rs 30 = Rs 3,000 (unfavourable)
Y: (500 – 400) × Rs 20 = 2,000 (favourable)
Z: (50 – 100) × Rs 50 = 2,500 (unfavourable)
Total SVV = 3,500 (unfavourable)