Question 16.4: Calculating sales variances The following data relate to Fro...
Calculating sales variances
The following data relate to Frozen Limited for the year to 31 July 2016:
| Budget/standard | Actual | |
| Sales (units) | 100 | 90 |
| Selling price per unit | £10 | £10.50 |
| Standard cost per unit | £7 | – |
| Standard profit per unit | £3 |
Required:
Calculate the sales variances.
Selling price variance = [actual sales revenue – (actual sales quantity × standard cost per unit)] – (actual quantity × standard profit per unit)
= [£945 – (90 units × £7)] – (90 units × £3) = (£945 – 630) – 270 = \underline{£45 (F)}
The actual selling price per unit was £0.50 more than the standard selling price (£10.50 -10.00) and so the variance is favourable. Other things being equal, the profit would be £45 higher than budgeted for the actual number of units sold.
Sales volume profit variance = (actual quantity – budgeted quantity) × standard profit per unit.
The standard profit is £3 per unit.
(90 units – 100 units) = 10 × £3 = \underline{£30 (A)}
The sales volume profit variance is £30 adverse because only 90 units were sold instead of the budgeted amount of 100 units. As a result, £30 less profit was made
Total sales variance = [actual sales revenue – (actual sales quantity × standard cost per unit)] – (budgeted quantity × standard profit per unit)
The actual sales revenue = £945 (90 units × £10.50).
[£945 – (90 units × £7)] – (100 units × £3) = (£945 – 630) – 300 = \underline{£15 (F)}
When the £45 favourable selling price is set off against the £30 adverse sales volume profit variance, there is a favourable total sales variance of £15 (£45 – 30)