Sales Variance Calculation and Analysis

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FORMULA FOR SALES VARIANCES Sales value variance Price (SP – AP) x AQ

Volume (BQ – AQ) x SP

Sales/Profit margin variance Price (SM – AM) x AQ

Volume (BQ – AQ) x SM

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Actual contribution

Budgeted contribution (Standard margin * Actual Volume)

Sales margin price variance

Budgeted contribution (Standard margin* Standard volume)

Sales margin volume variance

Total sales margin variance

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SALES VARIANCE (MARGINAL COSTING) • TOTAL SALES MARGIN VARIANCE = ACTUAL CONTRIBUTION – BUDGETED CONTRIBUTION = [(ACTUAL SELLING PRICE – STANDARD COST OF SALES )*ACTUAL SALES VOLUME] – BUDGETED CONTRIBUTION

• SALES MARGIN PRICE VARIANCE = (ACTUAL CONTRIBUTION PER UNIT – STANDARD CONTRIBUTION PER UNIT) * ACTUAL SALES VOLUME

• SALES MARGIN VOLUME VARIANCE = (ACTUAL VOLUME – BUDGET VOLUME)* STANDARD CONTRIBUTION PER UNIT

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SALES VARIANCE (ABSORPTION COSTING)

• SALES MARGIN PRICE VARIANCE = (ACTUAL PROFIT MARGIN PER UNIT – STANDARD PROFIT MARGIN PER UNIT) * ACTUAL SALES VOLUME

• SALES MARGIN VOLUME VARIANCE = (ACTUAL VOLUME – BUDGET VOLUME)* STANDARD PROFIT MARGIN PER UNIT

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HZL Ltd. makes and sells a single product. The company uses a Standard marginal costing system. It plans to produce and sell 1000 units in May 2017. A budget statement is produced as follow: Budgeted income statement for the month ended 31 May 2017 $ $ Sales ($50*1000) 50000 Less: Variable cost of goods sold Direct materials ($3*4000) 12000 Direct labour ($5*3000) 15000 Variable overheads ($2*3000) 6000 33000 Budget contribution 17000 Fixed overhead 3000 Budget profit 14000

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The actual sales and production is 800 units. The actual income statement is shown as follows:

Income statement for the month ended 31 May 2017 $ Sales ($60*800) Less: Variable cost of goods sold Direct materials ($3.2*2400) Direct labour ($6*3200) Actual Variable overheads Contribution Fixed overhead Net profit

$ 48000

12000 15000 5500 32380 15620 2600 13020

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SALES VARIANCE (MARGINAL COSTING) • TOTAL SALES MARGIN VARIANCE = ACTUAL CONTRIBUTION – BUDGETED CONTRIBUTION = [(ACTUAL SELLING PRICE – STANDARD COST OF SALES )*ACTUAL SALES VOLUME] – BUDGETED CONTRIBUTION = [($60 - $33)*800] - $17000 = $21600 - $17000

= $4600 (F)

$33000/1000 units

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SALES VARIANCE •

SALES MARGIN PRICE VARIANCE

= (ACTUAL CONTRIBUTION PER UNIT – STANDARD CONTRIBUTION PER UNIT) * ACTUAL SALES VOLUME = [($60 - $33) – ($50 - $33)]*800 = $8000 F

$33000/1000 units

SALES MARGIN VOLUME VARIANCE = (ACTUAL VOLUME – BUDGET VOLUME)* STANDARD CONTRIBUTION PER UNIT = (800 -1000)*$17 = $2800 (A)

$17000/1000 units

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SALES VARIANCE (MARGINAL COSTING)

• SALES MARGIN PRICE VARIANCE • SALES MARGIN VOLUME VARIANCE • TOTAL SALES VARIANCE

$8000 F $3400 A $4600 F

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SALES VARIANCE (ABSORPTION COSTING) • SALES MARGIN PRICE VARIANCE = (ACTUAL PROFIT MARGIN PER UNIT – STANDARD PROFIT MARGIN PER UNIT) * ACTUAL SALES VOLUME = [($60-$36) – ($50-$36)]*800 = $8000 F

(33000+3000)/1000 units

• SALES MARGIN VOLUME VARIANCE

= (ACTUAL VOLUME – BUDGET VOLUME)* STANDARD PROFIT MARGIN PER UNIT = (800-1000)*$14 = $3400 A

$14000/1000 units

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SALES VARIANCE (ABSORPTION COSTING)

• SALES MARGIN PRICE VARIANCE • SALES MARGIN VOLUME VARIANCE • TOTAL SALES VARIANCE

$8000 F $2800 A $5200 F

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Actual FO

Budgeted FO

FO expenditure variance/ FO spending variance

Absorbed VO (SP* standard hours for actual output

FO volume variance

Total FO variance (under-/over- absorbed)

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FIXED OVERHEAD VARIANCE

• FIXED OVERHEADS VARIANCE = FIXED OVERHEADS ABSORBED – ACTUAL FIXED OVERHEADS INCURRED

• FIXED OVERHEADS EXPENDITURE VARIANCE BUDGETED FIXED OVERHEADS – BUDGETED OVERHEADS ABSORBED

• FIXED OVERHEADS VOLUME VARIANCE = ABSORBED FIXED OVERHEADS – BUDGETED OVERHEADS ABSORBED

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HZL Ltd. makes and sells a single product. The company uses a Standard marginal costing system. It plans to produce and sell 1000 units in May 2017. A budget statement is produced as follow: Budgeted income statement for the month ended 31 May 2017 $ $ Sales ($50*1000) 50000 Less: Variable cost of goods sold Direct materials ($3*4000) 12000 Direct labour ($5*3000) 15000 Variable overheads ($2*3000) 6000 33000 Budget contribution 17000 Fixed overhead 3000 Budget profit 14000

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The actual sales and production is 800 units. The actual income statement is shown as follows:

Income statement for the month ended 31 May 2017 $ Sales ($60*800) Less: Variable cost of goods sold Direct materials ($3.2*2400) Direct labour ($6*3200) Actual Variable overheads Contribution Fixed overhead Net profit

$ 48000

12000 15000 5500 32380 15620 2600 13020

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FIXED OVERHEAD VARIANCE •

FIXED OVERHEADS VARIANCE = FIXED OVERHEADS ABSORBED – ACTUAL FIXED OVERHEADS INCURRED = ($1*3*800) - $2600 = $200 A

FIXED OVERHEADS EXPENDITURE VARIANCE = BUDGETED FIXED OVERHEADS – BUDGETED OVERHEADS ABSORBED = $3000 - $2600

= $400 F

FIXED OVERHEADS VOLUME VARIANCE = ABSORBED FIXED OVERHEADS – BUDGETED OVERHEADS ABSORBED = ($1*3*800) - $3000

= $600 A

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FIXED OVERHEAD VARIANCE IN MARGINAL AND ABSORPTION COSTING IN MARGINAL COSTING:

• FIXED OVERHEADS ARE CHARGED AS PERIOD COSTS INSTEAD OF CHARGING TO PRODUCT IN MARGINAL COSTING.

• IT IS ASSUMED THAT THE FIXED OVERHEADS REMAIN UNCHANGED WITH THE CHANGE IN THE LEVEL OF ACTIVITY. SINGLE FIXED OVERHEAD EXPENDITURE VARIANCE WILL BE USED

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IN ABSORPTION COSTING

• FIXED OVERHEADS ARE CHARGED TO THE PRODUCTS AND INCLUDED IN THE VALUATION OF CLOSING STOCK.

• TOTAL FIXED OVERHEADS VARIANCE IS DIVIDED INTO FIXED OVERHEADS PRICE VARIANCE AND FIXED OVERHEADS VOLUME VARIANCE

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