B sales variance based on margin ie contribution

Info icon This preview shows pages 355–357. Sign up to view the full content.

View Full Document Right Arrow Icon
B. Sales Variance Based on Margin (i.e., Contribution Margin or Profit): The sales variances using margin approach show the difference in actual profit and budgeted profit only whereas sales variances based on turnover show the difference between total actual sales and total budgeted sales. The following sales variances are calculated if margin or profit is the basis of calculation: Sales Variances based on Margin or Profit (i) Total Sales Margin Variance: This variance indicates the aggregate or total variance under the margin method. This variance shows the difference between actual profit and budgeted profit. The formula is: Total sales margin variance = Actual Profit Budgeted profit If actual profit is more than the budgeted profit, variance will be favourable and if actual profit is less than the budgeted profit, unfavourable variance will arise. (ii) Sales Margin Price Variance: This variance is one part of total sales margin variance and arises due to the difference between actual margin per unit and budgeted margin per unit. It is significant to note that, assuming cost of production being constant, the difference in the actual margin and budgeted margin will only be because of the difference between actual selling price and budgeted selling price. The formula for calculating sales margin price variance is Sales Margin Price Variance = (Actual Margin per unit Budgeted Margin per unit) x Actual quantity
Image of page 355

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
349 If actual margin per unit is more than the budgeted margin per unit, favourable variance will be found and if actual margin is less than the budgeted margin, variance will be unfavourable. (iii) Sales Margin Volume Variance: This variance shows the difference between actual sales units and budgeted sales units. The formula is: Sales Margin Volume Variance = (Actual quantity Budgeted quantity) x Budgeted Margin per unit. If actual sales units are more than the budgeted sales units, variance will be favourable and if actual sales units are less than the budgeted sales units, unfavourable variance will arise. Sales margin volume variance can be calculated using another formula which is: Sales margin volume variance = (Standard profit on actual quantity of sales Budgeted profit) If standard profit exceeds budgeted profit, variance will be favourable and if standard profit is less than the budgeted profit, unfavourable variance will emerge. Sales margin volume variance consists of: (i) Sales margin mix variance and (ii) Sales margin quantity variance. (i) Sales Margin Mix Variance: This variance shows the difference between actual mix of goods and budgeted (standard) mix of goods sold. The formula is: Sales Margin Mix Variance = (Actual sales mix Standard proportion of actual sales mix) x Budgeted margin per unit.
Image of page 356
Image of page 357
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern