# Sales Quantity Variance

## Definition

Sales Quantity Variance measures the change in standard profit or contribution arising from the difference between actual and anticipated number of units sold during a period.

## Formula

Sales Quantity Variance:

 = (Budgeted sales - Unit Sales at Standard Mix) x Standard Contribution*

*Where marginal costing is used

Sales Quantity Variance:

 = (Budgeted sales - Unit Sales at Standard Mix) x Standard Profit*

*Where absorption costing is used

## Explanation

Sales quantity variance is an extension of the sales volume variance which demonstrates the impact of a higher or lower sales quantity as compared to budget.

The difference between sales volume variance and sales quantity variance is that the former is calculated using the actual sales volume whereas the latter is calculated using the sales volume of products in the proportion of standard mix (see example below).

Since sales quantity variance is calculated using the standard mix, any difference between the standard and actual mix of products is to be ignored (since the difference is accounted for separately under the sales mix variance).

## Example

Aliengear Inc. is a small company that specializes in the manufacture and sale of gaming computers. Currently, the company offers two models of gaming PCs:

• Turbox - A professional gaming PC with a water-cooling system priced at \$2,500
• Speedo - An entry level gaming PC with standard fan cooling priced at \$1,000

Aliengear budgeted sales of 1,600 units of Turbox and 2,400 units of Speedo in the last year. The standard variable costs of a single unit of Turbox and Speedo were set at \$1,500 and \$750 respectively.

The sales team at Aliengear managed to sell 1,300 units of Turbox and 3,700 units of Speedo during the last year.

Sales Quantity Variance shall be calculated as follows:

Step 1: Calculate the standard mix ratio

Standard mix ratio:    40% Turbox* and 60% Speedo**

*  1,600 / (1,600 + 2,400) % = 40% Turbox

** 100% - 40% = 60% Speedo

Step 2: Calculate the sales quantities in proportion to the standard mix

The objective is to find the respective sales quantities of products as if the total sales during the period where distributed among the two products in proportion to their standard mix.

Total sales during the period: 1,300 Turbox + 3,700 Speedo = 5,000 units

Unit Sales at Standard Mix:

Sales of Turbox in standard mix @ 40% of 5,000 = 2,000 units

Sales of Speedo in standard mix @ 60% of 5,000 = 3,000 units

Step 3: Calculate the difference between actual sales quantities and the sales quantities in standard mix

 TurboxUnits SpeedoUnits Budgeted sales quantities (as per question) 1,600 2,400 Unit sales at standard mix (Step 2) (2000) (3000) Difference 400 Favorable 600 Favorable

Step 4: Calculate the standard contribution per unit

 Turbox\$ Speedo\$ Revenue 2,500 1,000 Variable cost (1,500) (750) Standard contribution per unit 1,000 250

Step 5: Calculate the variance for each product

 Turbox Speedo Standard contribution per unit (Step 4) \$1,000 \$250 Budgeted Sales - Sales in Standard mix (Step 3) x 400 units x 600 units Variance \$400,000 Fav \$150,000 Fav

Step 6: Add the individual variances

Sales Mix Variance   =   \$400,000 - \$150,000   =   \$550,000 Favorable

Step 7: Proof check

The sum of sales mix variance and sales quantity variance should equal sales volume variance.

Therefore:

 \$ Sales Quantity Variance (Step 6) 550,000 Favorable Sales Mix Variance (see solution here) (525,000) Adverse Total 25,000 Favorable

Equals-

Sales Volume Variance:

 Turbox Speedo Actual Sales 1,300 3,700 Budgeted Sales (1,600) (2,400) Difference (Units) (300) 1,300 Standard Contribution (\$) x 1,000 x 250 Sales Volume Variance (\$300,000) \$325,000

Total = \$320,000 - \$300,000 = \$25,000 Favorable

## Analysis

Favorable sales quantity variance suggests that the company was able to sell a higher number of products in aggregate as compared to the total number of units budgeted to be sold during a period.

Favorable sales quantity variance may be achieved through:

• Improvement in demand side factors where demand is the limiting factor such as by:
• Improved marketing of company products
• Higher overall demand in industry (e.g. due to increase in population, reduction in supply of substitutes, etc)
• Improvement in supply side factors where excess demand exists in the market for example through:
• Installation of a new production plant
• More efficient production (this may be evident in a favorable labor efficiency variance)

Adverse sales quantity variance indicates that the company sold lesser number of goods on aggregate basis as compared to the total number of units budgeted to be sold during a period.

Adverse sales quantity variance may be caused by the following:

• Decline in demand side factors where demand is the limiting factor such as by:
• A reduction in the overall demand in industry (e.g. due to the introduction of a better or cheaper substitute in the market, etc)
• Decrease in the quantity and quality of supply side factors where excess demand exists in the market for example due to:
• Unavailability of a critical manufacturing component or raw material
• Decline in the productivity of the workforce (this should be evident in an adverse labor efficiency variance)