Question 3 (a)
Sales variances: volume, price, mix and total
12 marks
- Time to write
- About 24 minutes
Question
Question 3 (a) · 12 marksFor April 2024, K Ltd gives the following information on its budgeted sales and actual sales:
| Product | Sales Quantity | Selling Price per unit | |
|---|---|---|---|
| Budgeted Sales: | A | 1000 | 16 |
| B | 800 | 20 | |
| C | 2200 | 40 | |
| Actual Sales: | A | 900 | 18 |
| B | 900 | 20 | |
| C | 2700 | 37 |
Calculate these Variances:
Volume Variance of Sales
Price Variance of Sale
Mix Variance of Sale
Total Variance of Sales
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- CalculateFormula first, then the working, then the answer with its unit (₹, %, units).
What the paper leaves open
The four variances are numbered (i), (i), (ii), (iv) as printed; they are read as four items in that order.
Write it in this order
- Read the data; note exactly what is asked 2 min
- 1 Sales volume variance 3 marks 5 min
- 2 Sales price variance 3 marks 5 min
- 3 Sales mix variance with RSQ 4 marks 7 min
- 4 Total sales variance and reconciliation 2 marks 3 min
- Check: arithmetic, units (₹, %), final answer underlined 2 min
Try it first. About 24 minutes for 12 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
No cost data are given, so the variances are worked on sales value (turnover). F = favourable, A = adverse.
Working: budgeted and actual sales
| Product | Budgeted qty | Budgeted price (₹) | Budgeted sales (₹) | Actual qty | Actual price (₹) | Actual sales (₹) |
|---|---|---|---|---|---|---|
| A | 1,000 | 16 | 16,000 | 900 | 18 | 16,200 |
| B | 800 | 20 | 16,000 | 900 | 20 | 18,000 |
| C | 2,200 | 40 | 88,000 | 2,700 | 37 | 99,900 |
| Total | 4,000 | 1,20,000 | 4,500 | 1,34,100 |
Revised standard quantity (RSQ): the actual total of 4,500 units in the budgeted ratio 1,000: 800: 2,200 (25%: 20%: 55%).
| Product | RSQ (units) | Actual qty | Budgeted price (₹) |
|---|---|---|---|
| A | 1,125 | 900 | 16 |
| B | 900 | 900 | 20 |
| C | 2,475 | 2,700 | 40 |
| Total | 4,500 | 4,500 |
(i) Sales volume variance = Budgeted price × (Actual qty − Budgeted qty)
| Product | Working | Variance (₹) |
|---|---|---|
| A | 16 × (900 − 1,000) | 1,600 A |
| B | 20 × (900 − 800) | 2,000 F |
| C | 40 × (2,700 − 2,200) | 20,000 F |
| Total | 20,400 F |
(ii) Sales price variance = Actual qty × (Actual price − Budgeted price)
| Product | Working | Variance (₹) |
|---|---|---|
| A | 900 × (18 − 16) | 1,800 F |
| B | 900 × (20 − 20) | 0 |
| C | 2,700 × (37 − 40) | 8,100 A |
| Total | 6,300 A |
(iii) Sales mix variance = Budgeted price × (Actual qty − RSQ)
| Product | Working | Variance (₹) |
|---|---|---|
| A | 16 × (900 − 1,125) | 3,600 A |
| B | 20 × (900 − 900) | 0 |
| C | 40 × (2,700 − 2,475) | 9,000 F |
| Total | 5,400 F |
The rest of the volume variance is the sales quantity variance = Budgeted price × (RSQ − Budgeted qty) = 16 × 125 + 20 × 100 + 40 × 275 = ₹15,000 F; mix ₹5,400 F + quantity ₹15,000 F = volume ₹20,400 F.
(iv) Total sales variance = Actual sales − Budgeted sales = ₹1,34,100 − ₹1,20,000 = ₹14,100 F
| Variance | ₹ |
|---|---|
| Sales price variance | 6,300 A |
| Sales volume variance | 20,400 F |
| Total sales variance | 14,100 F |
Check: price ₹6,300 A + volume ₹20,400 F = total ₹14,100 F.
Where the 12 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Sales volume variance | 3 |
| 2 | Sales price variance | 3 |
| 3 | Sales mix variance (with RSQ) | 4 |
| 4 | Total sales variance and reconciliation | 2 |
| Total | 12 |
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