Sales variance
Encyclopedia
Sales variance is the difference between actual sales
Sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....

 and budget sales. It is used to measure the performance of a sales function, and/or analyze business results to better understand market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...

 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

Sales Price Variance: The sales price variance reveals the difference in total revenue caused by charging a different selling price from the planned or standard price. 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.
  1. Sales Mix Variance
  2. Sales Quantity Variance

Total variance

The total variance can thus be seen algebraic
Algebraic
Algebraic may refer to any subject within the algebra branch of mathematics and related branches like algebraic geometry and algebraic topology.Algebraic may also refer to:...

ally to be (minus $6) plus (plus $3), giving (minus $3). Or: -6+3=-3.

This result tells us that the negati ve effect of selling
Selling
Selling is offering to exchange something of value for something else. The something of value being offered may be tangible or intangible. The something else, usually money, is most often seen by the seller as being of equal or greater value than that being offered for sale.Another person or...

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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