Basic Variance Analysis

Question 1

What are the two Sales Variances?

Answer 1

Sales Volume Variance and Sales Prices Variance

Question 2

What does the sales volume variance tell us? What is its formula?

Answer 2

The sales volume variance shows the effect on profit of selling more or less than the budgeted quantity.

It is calculated as:

Absorption Costing
(Actual sales units - budgeted sales units) x standard profit per unit

Marginal Costing
(Actual sales units - budgeted sales units) x standard contribution per unit

Question 3

What does the sales price variance show and what is its formula?

Answer 3

The sales price variance shows the effect on profit of selling at a higher or lower price than the standard.

It’s calculated as:
Actual sales at actual price (actual revenue) - actual sales at standard price

Or

(Actual price - standard price) x actual sales

Question 4

What are the Materials Variances?

Answer 4

Materials price variance and materials usage variance.

Question 5

What is the materials price variance formula?

Answer 5

MPV = Actual materials purchased at actual price - Actual materials purchased at standard price

Or

(Actual price - standard price) x actual materials purchased

Question 6

What is the formula for Materials Usage Variance?

Answer 6

MUV = (Materials used - Standard materials for actual production) x standard price per kg