Sales Variances Flashcards
1In analyzing company operations, the controller of the corporation found a $250,000 favorable
flexible-budget revenue variance. The variance was calculated by comparing the actual results with the flexible
budget. This variance can be wholly explained by
A. The total flexible budget variance.
B. The total sales volume variance.
C. The total static budget variance.
D. Changes in unit selling prices.
Answer (D) is correct.
Variance analysis can be used to judge the effectiveness of selling departments. If a firm’s sales differ
from the amount budgeted, the difference may be attributable to either the sales price variance or the
sales volume (quantity) variance. Changes in unit selling prices may account for the entire variance if
the actual quantity sold is equal to the quantity budgeted. None of the revenue variance is attributed to
the sales volume variance because no such variance exists when a flexible budget is used. The flexible
budget is based on the level of sales at actual volume.
2The variance that arises solely because the quantity actually sold differs from the quantity budgeted
to be sold is
A. Static budget variance.
B. Master budget increment.
C. Sales mix variance.
D. Sales volume variance.
Answer (D) is correct.
If a firm’s sales differ from the amount budgeted, the difference could be attributable either to the sales price variance or the sales volume variance. The sales volume variance is the change in contribution
margin caused by the difference between the actual and budgeted sales volumes.
3The sales volume variance is partly a function of the unit contribution margin (UCM). For a singleproduct
company, it is
A. The difference between actual and master budget sales volume, times actual UCM.
B. The difference between flexible budget and actual sales volume, times master budget UCM.
C. The difference between flexible budget and master budget sales volume, times actual UCM.
D. The difference between flexible budget and master budget sales volume, times master budget UCM.
Answer (D) is correct.
For a single-product company, the sales volume variance is the difference between the actual and
budgeted sales quantities times the budgeted UCM. If the company sells two or more products, the
difference between the actual and budgeted product mixes must be considered. In that case, the sales
volume variance equals the difference between (1) actual total unit sales times the budgeted weightedaverage
UCM for the actual mix and (2) budgeted total unit sales times the budgeted weighted-average
UCM for the planned mix.
4For a company that produces more than one product, the sales volume variance can be divided into
which two of the following additional variances?
A. Sales price variance and flexible budget variance.
B. Sales mix variance and sales price variance.
C. Sales quantity variance and sales mix variance.
D. Sales mix variance and production volume variance.
Answer (C) is correct.
The sales volume variance can be divided into the sales quantity variance and the sales mix variance.
The sales quantity variance is the change in contribution margin caused by the difference between
actual and budgeted volume, assuming that budgeted sales mix, unit variable costs, and unit sales
prices are constant. Thus, it equals the sales volume variance when the sales mix variance is zero. In a
multiproduct firm, the sales mix variance is a variance caused by a sales mix that differs from that
budgeted. For example, even when the sales quantity is exactly as budgeted, an unfavorable sales mix
variance can be caused by greater sales of a low-contribution product at the expense of lower sales of a
high-contribution product.
5The sales quantity variance is partly a function of the unit contribution margin (UCM). It equals
A. Actual units × (budgeted weighted-average UCM for planned mix – budgeted weighted-average UCM for
actual mix).
B. (Actual units – master budget units) × budgeted weighted-average UCM for the planned mix.
C. Budgeted market share percentage × (actual market size in units – budgeted market size in units) ×
budgeted weighted-average UCM.
D. (Actual market share percentage-budgeted market share percentage) × actual market size in units ×
budgeted weighted-average UCM.
Answer (B) is correct.
The sales volume variance equals the difference between the flexible budget contribution margin for
the actual volume and that included in the master budget. Its components are the sales quantity and
sales mix variances. The sales quantity variance focuses on the firm’s aggregate results. It assumes a
constant product mix and an average contribution margin for the composite unit. It equals the
difference between actual and budgeted unit total sales, times the budgeted weighted-average UCM for
the planned mix.
6The sales mix variance is partly a function of the unit contribution margin (UCM). It equals
A. Actual units × (budgeted weighted-average UCM for planned mix – budgeted weighted-average UCM for
actual mix).
B. (Actual units – master budget units) × budgeted weighted-average UCM for planned mix.
C. Budgeted market share percentage × (actual market size in units – budgeted market size in units) ×
budgeted weighted-average UCM.
D. (Actual market share percentage – budgeted market share percentage) × actual market size in units ×
budgeted weighted-average UCM.
Answer (A) is correct.
The sales mix variance may be viewed as a sum of variances. For each product in the mix, the
difference between actual units sold and its budgeted percentage of the actual total unit sales is
multiplied by the budgeted UCM for the product. The results are added to determine the mix variance.
An alternative is to multiply total actual units sold by the difference between the budgeted weightedaverage
UCM for the planned mix and that for the actual mix.
7The market size variance is partly a function of the unit contribution margin (UCM). It equals
A. Actual units × (budgeted weighted-average UCM for planned mix – budgeted weighted-average UCM for
actual mix).
B. (Actual units – master budget units) × budgeted weighted-average UCM for the planned mix.
C. Budgeted market share percentage × (actual market size in units – budgeted market size in units) ×
budgeted weighted-average UCM.
D. (Actual market share percentage – budgeted market share percentage) × actual market size in units ×
budgeted weighted-average UCM.
Answer (C) is correct.
The components of the sales quantity variance are the market size variance and the market share variance. The market size variance gives an indication of the change in contribution margin caused by
a change in the market size. The market size and market share variances are relevant to industries in
which total level of sales and market share are known, e.g., the automobile industry. The market size
variance measures the effect of changes in an industry’s sales on an individual company, and the
market share variance analyzes the impact of a change in market share.
15The market share variance is partly a function of the unit contribution margin (UCM). It equals
A. Actual units × (budgeted weighted-average UCM for planned mix – budgeted weighted-average UCM for
actual mix).
B. (Actual units – master budget units) × budgeted weighted-average UCM for the planned mix.
C. Budgeted market share percentage × (actual market size in units – budgeted market size in units) ×
budgeted weighted-average UCM.
D. (Actual market share percentage – budgeted market share percentage) × actual market size in units ×
budgeted weighted-average UCM.
Answer (D) is correct.
The market share variance gives an indication of the amount of contribution margin gained (forgone)
because of a change in the market share.
17The sales mix variance
A. Will be an unfavorable 5% whenever a 5% decrease occurs in a company’s overall sales volume.
B. Will be favorable when a company sells fewer products bearing unit contribution margins higher than
average.
C. Measures the effect of the deviation from the budgeted weighted-average contribution margin per unit
associated with a change in the quantities of products in the mix.
D. Equals the difference between the budgeted weighted-average materials unit costs for the actual and
planned mixes, times the actual materials input.
Answer (C) is correct.
The sales mix variance is a sum of variances. For each product in the mix, the difference between units
sold and expected to be sold is multiplied by the difference between the budgeted UCM for the product
and the budgeted weighted-average UCM for all products. The results of these computations are then
added to determine the mix variance. This variance measures the effect of the change in the weightedaverage
UCM associated with the changes in the quantities of items in the mix. The sales mix variance
is favorable when more units with a higher than average UCM are sold or when fewer units with a
lower than average UCM are sold.
30When comparing its actual operating income to its master budget operating income, the controller
noted that actual total sales units equaled budgeted total sales units and budgeted fixed costs equaled actual fixed
costs. He also noted that both products were sold for their budgeted selling prices per unit and each product had both
a budgeted and actual contribution margin ratio of 40%. However, the company experienced a favorable static
budget variance for operating income for the period. Which one of the following is a viable explanation for this
variance?
A. The company produced fewer units than budgeted.
B. The company’s income tax rate was lower than budgeted.
C. The method used to allocate fixed selling and administrative costs to its products was different than
planned.
D. The product mix was different than budgeted.
Answer (D) is correct.
The company has actual total sales units that equaled budgeted total sales units, budgeted fixed costs
that equaled actual fixed costs, budgeted selling prices per unit that equaled actual selling price per
unit, and budgeted contribution margin ratio that equaled actual contribution margin ratio. With a
product mix different than budgeted, operating income can differ from the static budget
