Calculating sales variances The following data relate to Frozen Limited for the year to 31 July 2016:

Question

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.

Accepted Answer

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 = [latex]\underline{£45 (F)}[/latex]

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 = [latex]\underline{£30 (A)}[/latex]

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 = [latex]\underline{£15 (F)}[/latex]

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)

Question 16.4: Calculating sales variances The following data relate to Fro...

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