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The sales variances can be computed in two ways. They are :
(a) Sales turnover or value method.
(b) Profit or sales margin method.
(a) Sales turnover or sales value method : In the sales turnover method, the variances are computed on the basis of sales value. This method will give the sales manager an idea of the effect of various factors affecting sales such as prices, quantity and sales mix on the overall sales value.
The sales value variances are more or less similar to material cost variances or labour cost variances.
1. Sales value variance :It is the difference between the budgeted sales and actual sales.
The variance can be bifurcated into sales price variance and sales volume variance.
2. Sales price variance :
Actual quantity of Sales (Actual price – Budgeted price) or Actual sales minus actual quantity at budgeted prices.
3. Sales volume variances :
Budgeted price (Actual quantity – Budgeted quantity) or Actual quantity at budgeted price minus budgeted sales.
As in the case of materials, the sales volume variance can be bifurcated into sales mix variance and sales quantity variance. The former shows the difference in sales value due to the fact that the actual sales mix is different from what was expected as the budgeted mix.The latter shows the effect of total quantity being larger or smaller than what was budgeted.
4. Sales mix variance : For calculating the sales mix variance, we have to calculate the average budgeted price per unit of budgeted mix and the average budgeted price per unit of actual mix. The sales mix variance can then be calculated as below:
Total actual sales quantity (Budgeted price per unit of actual mix – Budgeted price per unit of budgeted mix)
5. Sales quantity variance :
Budgeted price per unit of budgeted mix (Actual total sales qty. – Budgeted total sales qty.)
