# 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 Units Sold

= 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:

Actual Price (a) | Standard Price (b) | a - b = c | Unit Sold (d)(tons) | c x d | |

NHK-II | 380 | 400 | 20 | 200 | 4,000 Adverse |

ORG-I | 660 | 600 | 60 | 300 | 18,000 Favorable |

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