# What are various types of sales variances in cost accounting

Sales variance can be defined as the difference between the standard or expected revenue and the actual revenue.

It is different from cost variances because cost variances occur when costs deviate from the budgeted amounts. Investigation of what caused the variance is crucial to understand to make management decisions such as buying or making a decision or continuing or discontinuing a product line.

## Why Do Sales Variance Arise?

One reason why sales variance may arise is changes in market conditions. For example, a sudden change in consumer behaviour or preferences can result in a decline in demand for certain products or services, leading to lower-than-expected sales figures. Additionally, economic factors such as inflation or recession can also affect purchasing power and ultimately impact overall sales performance.

Another factor contributing to sales variance is internal business decisions or factors such as pricing strategies and promotional activities. Ineffective pricing strategies that do not align with customer expectations can lead to reduced demand and lower revenue streams. Likewise, promotional campaigns that do not resonate with target customers may also fail to generate anticipated levels of interest and revenue.

## What are the Types of Sales Variances?

There are two factors that might have caused the total variance: either a difference in the number of units that were sold or in the selling price.

Because two different factors are affecting the total sales variance, they must be divided into the following 2 types:

### Sales Volume Variance

Sales volume variance calculates the effect of actual sales volume is different from the budget, sales volume using standard profit, on profitability. Please note that sales price variance takes account of the difference between actual and budget selling prices.

(Budget sales price – budget cost) x budget quantity (*Less) *(Budget sales price – budget cost) x actual quantity

While this variance has been used to isolate the effect of volume variations on profit, it still does not provide a great deal of information about the performance of products on the market. As a result, additional investigation is required.

### Sales Price Variance

Sales price variance measures the difference between the actual selling price of a product and its budgeted or standard selling price, multiplied by the actual quantity sold. It helps businesses assess how pricing strategy impacts their sales performance and overall profitability. A favourable sales price variance occurs when the actual selling price exceeds the budgeted amount, while an unfavourable variance results from the actual selling price being lower than budgeted.

The impact on the profitability of the actual selling price is different from the budgeted selling price and is calculated using the sales price variance (SPV). Sales volume variance should be taken into consideration in conjunction with this variance.

The following are the formulas for calculating each of these variances:

**Sales volume variance:**

Standard selling price x (Actual number of units sold – Standard number of units sold)**Sales price variance:**The actual number of units sold x (Actual selling price – Standard selling price)

**Total sales variance:**

Sales volume variance + Sales price variance

For example, the following information is given about a product:

- The actual number of units sold: 4800
- The standard number of units sold: 5000
- Actual sales at a standard selling price: $192,000
- Actual sales at an actual selling price: $187,200
- Actual selling price: $39
- Standard selling price: $40

The sales volume variance = $40(4800 – 5000) = $8000 adverse (as the actual sales volume was lower than the standard sales volume)

The sales price variance = $187,200 – 192,000 = $4800 adverse

The direct material cost variance = $12,00 adverse

## Conclusion

Understanding sales variance helps businesses assess their performance and pinpoint the factors contributing to deviations from expected sales levels. By analyzing these variances, organizations can make informed decisions about how to manage their resources, adjust future forecasts, and implement strategies to improve sales performance and overall profitability.