# Sales Price Variance

## Definition

Sales Price Variance is the measure of change in sales revenue as a result of variance between actual and standard selling price.

## Formula

### Sales Price Variance:

 = (Actual Price - Standard Price) x Actual Unit = Actual Price x Actual Units Sold - Standard Price x Actual Units Sold = Actual Sales Revenue - Standard Revenue of Actual Units Sold

## Explanation

Sales Price Variance can be calculated in a number of ways as illustrated in the formulas given above. The calculation of the variance is in fact very simple if you just remember the objective of finding the variance, i.e. how much change in sales revenue is attributable to the change in selling price from the standard?

## Example

ABC PLC is a fertilizer producer which specializes in the manufacture of NHK-II (a chemical fertilizer) and ORG-I (a types of organic fertilizer).

Following information relates to the sale of fertilizers by ABC PLC during the period:

 Material Quantity Acutal Price Standard Price NHK-II 200 tons \$380/ton \$400/ton ORG-I 300 tons \$660/ton \$600/ton

Sales Price Variance shall be calculated as follows:

 ActualPrice (a) StandardPrice (b) a - b = c Unit Sold (d)(tons) c x d NHK-II 380 400 20 200 4,000Adverse ORG-I 660 600 60 300 18,000Favorable Total 14,000Favorable

## Analysis

Favorable sales price variance suggests higher selling price realized during the period than anticipated in the standard. Reasons for favorable sales price variance may include:

• Decrease in the number of competitors in the market
• Improved product differentiation and market segmentation
• Better promotion and aggressive sales campaign

Adverse sales price variance indicates that sales were made at a lower average price than the standard. Causes for adverse sales price variance may include:

• Increase in competition in the market
• Decrease in demand for the products
• Reduction in price enforced by regulatory authorities