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    Revenue Variance

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    surendar
    This document discusses revenue variance analysis, including sales variances, sales revenue variance, sales price variance, and sales volume variance. It provides formulas and explanations for each. Specifically: 1) Sales variances include sales price variance and sales volume variance, which together account for total sales revenue variance. Sales volume variance further breaks down into sales mix variance and sales volume sub-variance. 2) Sales revenue variance is the difference between standard and actual sales value, and can be caused by differences in price, volume, mix, or sales allowances from budgets. 3) Sales price variance results from differences in actual and standard prices multiplied by actual units sold. 4) Sales volume variance stems from differences in

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    Revenue Variance

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    surendar
    25 views4 pages
    This document discusses revenue variance analysis, including sales variances, sales revenue variance, sales price variance, and sales volume variance. It provides formulas and explanations for each. Specifically: 1) Sales variances include sales price variance and sales volume variance, which together account for total sales revenue variance. Sales volume variance further breaks down into sales mix variance and sales volume sub-variance. 2) Sales revenue variance is the difference between standard and actual sales value, and can be caused by differences in price, volume, mix, or sales allowances from budgets. 3) Sales price variance results from differences in actual and standard prices multiplied by actual units sold. 4) Sales volume variance stems from differences in

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    This document discusses revenue variance analysis, including sales variances, sales revenue variance, sales price variance, and sales volume variance. It provides formulas and explanations for each. Specifically: 1) Sales variances include sales price variance and sales volume variance, which together account for total sales revenue variance. Sales volume variance further breaks down into sales mix variance and sales volume sub-variance. 2) Sales revenue variance is the difference between standard and actual sales value, and can be caused by differences in price, volume, mix, or sales allowances from budgets. 3) Sales price variance results from differences in actual and standard prices multiplied by actual units sold. 4) Sales volume variance stems from differences in

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    25 views4 pages

    Revenue Variance

    Uploaded by

    surendar
    This document discusses revenue variance analysis, including sales variances, sales revenue variance, sales price variance, and sales volume variance. It provides formulas and explanations for each. Specifically: 1) Sales variances include sales price variance and sales volume variance, which together account for total sales revenue variance. Sales volume variance further breaks down into sales mix variance and sales volume sub-variance. 2) Sales revenue variance is the difference between standard and actual sales value, and can be caused by differences in price, volume, mix, or sales allowances from budgets. 3) Sales price variance results from differences in actual and standard prices multiplied by actual units sold. 4) Sales volume variance stems from differences in

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    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)

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