Sales Variances CMA Part 1 Sales Variances for a Single Product Firm Sales Price Variance for a Single Product Firm (Flexible Budget Variance) The Sales Price Variance is the same as the Flexible Budget Variance. They are simply two names for the same thing. The Flexible Budget Variances measure the difference between the actual results and the flexible budget amounts. Remember that the flexible budget is an adjusted budget, where all variable incomes and expenses have been adjusted to reflect the actual sales volume in terms of units sold, and this means that the difference between the actual results and the flexible budget is caused only by a difference between the standard and the actual price, not a difference between actual and budgeted quantity. The Actual Revenue amount in the variance report above is $2,500,000, and the actual number of units sold is 20,000. Therefore, the actual average sales price per unit is $2,500,000 .;. 20,000, or $125. The Static Budget Revenue amount is $2,880,000, and the static budget number of units sold is 24,000. Thus, the budgeted average sales price per unit is $2,880,000 .;. 24,000, or $120. In the variance report, the Revenue amount in the Flexible Budget column is $2,400,000. This is the budgeted selling price of $120 multiplied by the actual units sold of 20,000. The flexible budget variance for revenue is Actual Revenue of $2,500,000 minus Flexible Budget Revenue of $2,400,000, or $100,000 Favorable. The Sales Price Variance/Flexible Budget Variance can also be calculated using our general variance formula for the Price Variance: (AP - 5P) x AQ Thus, the Price Variance (the flexible budget variance for revenues), using the actual and budgeted selling prices, is ($125 - $120) x 20,000 = $100,000 F And that is the same as the Flexible Budget Variance for the Revenue line on the variance report. Remember that the Sales Price Variance can be calculated using the above Price Variance formula for every variable line on the variance report, not only the Revenue line. For the variable cost line, use the actual and standard per unit costs as the AP and SP in the Price Variance formula. If you are analyzing the contribution margin line, the AP and SP to use in the formula are the actual contribution margin per unit (actual price minus actual cost) and standard contribution margin per unit (standard price minus standard cost). Note: If actual results are being compared to the flexible budget (instead of to the static budget), the only cause of variances will be variances in price, because the flexible budget volume and the actual volume will be the same. That is the reason why the Sales Price Variance is the same as the Flexible Budget Variance.
Posted on: Fri, 15 Aug 2014 10:53:46 +0000
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