Question

Our company prepared a Master Budget for planning purposes before the beginning of the year. That budget was for unit sales of 32,000 chairs at a budgeted price of $100 per chair.
Actual sales for the period were 30,000 units totaling $2,910,000. T
What was the total sales budget variance?
How much of the sales budget variance is attributable to a difference in sales price (the Sales Price Variance)?
How much of the sales budget variance is attributable to the difference in sales volume (Sales Volume Variance?

Answer 1

Answer)

Calculation of Sales Budget Variance

Sales Budget Variance = Actual Sales – Budgeted Sales

                                          = Actual Sales - (Budgeted Quantity X Budgeted Price)

                                          = $ 2,910,000 - (32,000 chairs X $ 100 per chair)

                                           = $ 2,910,000 - $ 3,200,000

                                           = $ 290,000 (Unfavorable)

Calculation of Sales Price Variance

Sales Price Variance = (Actual Price – Standard Price) X Actual Quantity Sold

                                      = ($ 97 - $ 100) X 30,000 Chairs

                                      = $ 90,000 (Unfavorable)

Therefore out of the total Sales budget variance of $ 290,000 (Unfavorable), $ 90,000 (Unfavorable) is attributable to difference in sales price

Calculation of Sales Volume Variance

Sales Price Variance = (Actual Quantity – Budgeted Quantity) X Standard Price

                                      = (30,000 chairs – 32,000 chairs) X $ 100 per chair

                                      = $ 200,000 (Unfavorable)

Therefore out of the total Sales budget variance of $ 290,000 (Unfavorable), $ 200,000 (Unfavorable) is attributable to difference in sales Volume

Working Notes:

Actual Sales price per chair = Actual Sales/ Actual number of chairs sold

                                                  = $ 2,910,000/ 30,000 chairs

                                                   = $ 97 per chair