Sales variance

Sales variance

Sales variance is the difference between actual sales and budget sales. It is used to measure the performance of a sales function, and/or analyze business results to better understand market conditions.

There are two reasons actual sales can vary from planned sales: either the volume sold varied from plan (sales volume variance), or sales were at a different price from what was planned (sales price variance). Both scenarios could also simultaneously contribute to the variance.

For example: The plan was to sell 5 widgets at $3 each, for a budgeted sales of: (5*$3)=$15. In reality, 6 widgets were sold at $2 each, for an actual sales of: (6*$2)=$12. The total variance was thus ($12-$15)=$3 (U)nfavourable or minus $3, since total sales was less than planned.

Sales price variance

The sales price variance is calculated as: Actual quantity sold * (actual selling price-planned selling price). In the example, the sales price variance was 6*($2-$3)= $6 (U)nfavourable or minus $6, since the sales price was less than planned.

Sales volume variance

Sales Volume Variance is calculated as: Budgeted price * (actual volume-planned volume). In the example, the sales volume variance was $3*(6-5)= $3 (F)avourable, or plus $3, since the sales volume was more than planned.

Sales Volume Variance is further sub-divided into two variances.
# Sales Mix Variance
# Sales Qty Variance

Total variance

The total variance can thus be seen algebraically to be (minus $6) plus (plus $3), giving (minus $3). Or: -6+3=-3.

This result tells us that the negative effect of selling at a lower price was twice the positive effect of selling at a higher volume than planned. This might have occurred where prices were lowered to increase volume, but actual volume increases did not meet expectations, perhaps due to competitors also cutting their prices, or changes in customer preferences.


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