Sales variance scenario: multiple products

Scenario 2: multiple products

The following information is provided for products X and Y for the month of June:

	Product X, budgeted	Product Y, budgeted	Product X, actual	Product Y, actual
Sales volume (in units)	2,500	3,500	3,000	4,000
Selling price (in USD)	15	20	17	18

Calculate the following variances:

1. Total sales variance
2. Sales price variance
3. Sales volume variance
4. Sales mix variance
5. Sales quantity variance

When faced with a CMA exam problem with multiple products, the best way to calculate the variances is to do them separately for each product and then add them together for the total variance. This example illustrates how to use the different shorthand formulas in computing the variances.

2.1. Total sales variance

The general formula is:

$$\text{Total sales variance}=\text{Actual sales}-\text{Budgeted sales}$$

We need to calculate the summation of total sales variance for each product:

$$\begin{array}{rl}\text{Total sales variance product X}& =\text{Actual sales product X}-\text{Budgeted sales product X}\\ & =(3,000\times 17)-(2,500\times 15)\\ & =51,000-37,500\\ & =13,500(\text{F})\end{array}$$

$$\begin{array}{rl}\text{Total sales variance product Y}& =\text{Actual sales product Y}-\text{Budgeted sales product Y}\\ & =(4,000\times 18)-(3,500\times 20)\\ & =72,000-70,000\\ & =2,000(\text{F})\end{array}$$

$$\begin{array}{rl}\text{Total sales variance}& =\text{Total sales variance product X}+\text{Total sales variance product Y}\\ & =13,500(\text{F})+2,000(\text{F})\\ & =15,500(\text{F})\end{array}$$

The total sales variance is favorable because the total actual sales are greater than the budget.

2.2. Sales price variance

The general formula is:

$$\begin{array}{rl}\text{Sales price variance}& =(\text{Actual selling price}-\text{Budgeted selling price})\times \text{Actual sales quantity}\\ & =(\text{ASP}-\text{BSP})\times \text{ASQ}\end{array}$$

We need to calculate the summation of the sales price variances for each product:

$$\begin{array}{rl}\text{Sales price variance product X}& =(ASP-BSP)\times ASQ\\ & =(17-15)\times 3,000\\ & =2\times 3,000\\ & =6,000(\text{F})\end{array}$$

$$\begin{array}{rl}\text{Sales price variance product Y}& =(ASP-BSP)\times ASQ\\ & =(18-20)\times 4,000\\ & =-2\times 4,000\\ & =8,000(\text{U})\end{array}$$

$$\begin{array}{rl}\text{Sales price variance}& =\text{Sales price variance product X}+\text{Sales price variance product Y}\\ & =6,000(\text{F})+8,000(\text{U})\\ & =2,000(\text{U})\end{array}$$

The sales price variance for Product X is favorable because the actual selling price is higher than budgeted, while it is unfavorable for Product Y because the actual selling price is lower than budgeted. Since the unfavorable variance of Product Y is higher than that of Product X, it results in a net unfavorable variance.

2.3. Sales volume variance

The general formula is:

$$\begin{array}{rl}\text{Sales volume variance}& =\text{(Actual sales quantity}-\text{Budgeted sales quantity})\times \text{Budgeted selling price}\\ & =(\text{ASQ}-\text{BSQ})\times \text{BSP}\end{array}$$

We need to calculate the summation of the sales volume variances for each product:

$$\begin{array}{rl}\text{Sales volume variance product X}& =(\text{ASQ}-\text{BSQ})\times \text{BSP}\\ & =(3,000-2,500)\times 15\\ & =500\times 15\\ & =7,500(\text{F})\end{array}$$

$$\begin{array}{rl}\text{Sales volume variance product Y}& =(\text{ASQ}-\text{BSQ})\times \text{BSP}\\ & =(4,000-3,500)\times 20\\ & =500\times 20\\ & =10,000(\text{F})\end{array}$$

$$\begin{array}{rl}\text{Sales volume variance}& =\text{Sales volume variance product X}+\text{Sales volume variance product Y}\\ & =7,500(\text{F})+10,000(\text{F})\\ & =17,500(\text{F})\end{array}$$

The sales volume variances for both Product X and Product Y are favorable because the actual units sold are higher than budgeted. This resulted in a total favorable variance.

You can see that the total of the sales price and sales volume variances adds up to the same $\text{total sales variance}$ we computed before: $2,000(\text{U})+17,500(\text{F})=15,500(\text{F})$.

Lastly, the $\text{Sales volume variance}$ can be split into the mix and quantity variances, the total of which should agree with the $17,500 favorable variance computed in this section.

Before proceeding, you need to prepare the actual mix % (AM) and standard mix % (SM), which will be used in both mix and quantity variances:

$$\begin{array}{rl}\text{AM \% product X}& =\frac{3,000}{3,000+4,000}=42.86\%\\ \text{AM \% product Y}& =\frac{4,000}{3,000+4,000}=57.14\%\\ \text{SM \% product X}& =\frac{2,500}{2,500+3,500}=41.67\%\\ \text{SM \% product Y}& =\frac{3,500}{2,500+3,500}=58.33\%\end{array}$$

2.4. Sales mix variance

The general formula is:

$$\text{Sales mix variance}=((\text{ASQ}\times \text{AM})-(\text{ASQ}\times \text{SM}))\times \text{BSP}$$

We need to calculate the summation of the sales mix variances for each product. Note that the Actual Sales Quantity (ASQ) used here would be the total actual sales quantity of 7,000 units (Product X + Product Y).

$$\begin{array}{rl}\text{Sales mix variance product X}& =((\text{ASQ}\times \text{AM})-(\text{ASQ}\times \text{SM}))\times \text{BSP}\\ & =((7,000\times 42.86\%)-(7,000\times 41.67\%))\times 15\\ & =(3,000-2,917)\times 15\\ & =83\times 15\\ & =1,245(\text{F})\end{array}$$

$$\begin{array}{rl}\text{Sales mix variance product Y}& =((\text{ASQ}\times \text{AM})-(\text{ASQ}\times \text{SM}))\times \text{BSP}\\ & =((7,000\times 57.14\%)-(7,000\times 58.33\%))\times 20\\ & =(4,000-4,083)\times 20\\ & =-83\times 20\\ & =1,660(\text{U})\end{array}$$

$$\begin{array}{rl}\text{Sales mix variance}& =\text{Sales mix variance product X}+\text{Sales mix variance product Y}\\ & =1,245(\text{F})+1,660(\text{U})\\ & =415(\text{U})\end{array}$$

2.5. Sales quantity variance

The general formula is:

$$\text{Sales quantity variance}=((\text{ASQ}\times \text{SM})-(\text{BSQ}\times \text{SM}))\times \text{BSP}$$

We need to calculate the summation of the sales quantity variances for each product. Note that the Budgeted Sales Quantity ($\text{BSQ}$) used here would be the total budgeted sales quantity of 6,000 units (Product X + Product Y).

$$\begin{array}{rl}\text{Sales quantity variance product X}& =((\text{ASQ}\times \text{SM})-(\text{BSQ}\times \text{SM}))\times \text{BSP}\\ & =((7,000\times 41.67\%)-(6,000\times 41.67\%))\times 15\\ & =(2,917-2,500)\times 15\\ & =417\times 15\\ & =6,255(\text{F})\end{array}$$

$$\begin{array}{rl}\text{Sales quantity variance product Y}& =((\text{ASQ}\times \text{SM})-(\text{BSQ}\times \text{SM}))\times \text{BSP}\\ & =((7,000\times 58.33\%)-(6,000\times 58.33\%))\times 20\\ & =(4,083-3,500)\times 20\\ & =583\times 20\\ & =11,660(\text{F})\end{array}$$

$$\begin{array}{rl}\text{Sales quantity variance}& =\text{Sales quantity variance product X}+\text{Sales quantity variance product Y}\\ & =6,255(\text{F})+11,660(\text{F})\\ & =17,915(\text{F})\end{array}$$

From here, we can check that the sales volume variance we previously computed with a different approach is equal when we add up the sales mix and quantity variances:

$$\begin{array}{rl}\text{Sales volume variance}& =\text{Sales mix variance}+\text{Sales quantity variance}\\ & =415(\text{U})+17,915(\text{F})\\ & =17,500(\text{F})\end{array}$$

2.6. Summary

We can summarize all the variance computed from 2.1 to 2.5 into the following illustration: