Sales Price Variance
Sales Price Variance is the measure of change in sales revenue as a result of variance between actual and standard selling price.
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|
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?
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|
Sales Price Variance shall be calculated as follows:
|ActualPrice (a)||StandardPrice (b)||a - b = c||Unit Sold (d)|
|c x d|
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