CHAPTER 20: REVENUE AND PROFIT VARIANCE ANALYSIS

Solution RQ.20.10
Computation of Sales Variances

Product Standard Standard Total sales Actual Actual sales Actual

quantity, selling price, revenue quantity, price, sales revenue
SQ (units) SSP AQ (units) ASP
A 4,000 Rs 24 Rs 96,000 4,500 Rs 22 R 99,000
B 6,000 18 1,08,000 3,000 20 60,000
10,000 20.4 2,04,000 7,500 21.2 1,59,000

Sales variance (SRV): = [Budgeted sales (BS) Actual sales (AS)] = Rs 2,04,000 Rs 1,59,000 =
Rs 45,000 U
E Sales price variance (SPV) = (SSP ASP) AQ
Product A: (Rs 24 Rs 22) 4,500 = Rs 9,000 U
B: (Rs 18 Rs 20) 3,000 = 6,000 F
3,000 U
EE Sales volume variances (SVV) = (SQ AQ) SSP per unit
Product A: (4,000 units 4,500 units) Rs 24 = Rs 12,000 F
B: (6,000 units 3,000 units) Rs 18 = 54,000 U
42,000 U
There are two sub-variances of SVV:
= Sales-mix variance (SMV) = (RSQ AQ) SSP per unit
Product A: (4/10 7,500 = 3,000 units 4,500 units) Rs 24 = R 36,000 F
B: (6/10 7,500 = 4,500 units 3,000 units) Rs 18 = 27,000 U
9,000 F
> Sales volume sub-variance (SVSV): = (Total budgeted sales of all products Actual sales)
Weighted average standard selling price = (10,000 units 7,500 units) Rs 20.40 = Rs 51,000 U
Statement of Reconciliation of Actual Sales With Budgeted Sales
Budgeted sales Rs 2,04,000
Less sales price variance (unfavourable) 3,000
Less sales volume sub-variance (unfavourable) 51,000
Add sales mix variance (favourable) 9,000
Actual sales 1,59,000

Solution Table (Profit Variances)

Product Standard Actual
SQ (units) Standard profit Total profit AQ (units) Actual profit Total profit
per unit per unit
A 4,000 Rs 10 Rs 40,000 4,500 Rs 7 Rs 31,500
B 6,000 6 36,000 3,000 9 27,000
10,000 7.6 76,000 7,500 7.8 58,500
20.2 Management AccountingOLC

Total profit variance = (Budgeted profit Actual profit) = (Rs 76,000 Rs 58,500) = Rs 17,500 U
E Sales price variance: Rs 3,000 U (calculated above)
EE Sales volume variance: (SQ AQ Standard profit per unit
Product A: (4,000 units 4,500 units) Rs 10 = Rs 5,000 F
B: (6,000 units 3,000 units) Rs 6 = 18,000 U
13,000 U
= Sales-mix sub-variance = (RSQ AQ) SP per unit
Product A : (3,000 units 4,500 units) Rs 10 = Rs 15,000 F
B : (4,500 units 3,000 units) Rs 6 = 9,000 U
6,000 F
> Sales volume sub-variance: (Budget sales Actual sales) Weighted standard profit per unit =
(10,000 units 7,500 units) Rs 7.60 = Rs 19,000 U
EEE Cost variances (overall) = (SC AC ) AQ sold
Product A: (Rs 14 Rs 15) 4,500 = Rs 4,500 U
B: (Rs 12 Rs 11) 3,000 = 3,000 F
1,500 U
Statement of Reconciliation of Actual Profit With Budgeted Profit
Budgeted profit Rs 76,000
Less unfavourable variances
Sales price variance Rs 3,000 U
Sales volume sub-variance 19,000 U
Cost variance (overall) 1,500 U 23,500
Add favourable variances: Sales mix sub-variance 6,000
Actual profit 58,500

Solution RQ.20.11
Computation of Variances
Product Budgeted Actual
SQ (units) SSP Total sales AQ (units) ASP Actual sales
revenue revenue
A 1,200 Rs 15 Rs 18,000 880 Rs 18 Rs 15,840
B 800 20 16,000 880 20 17,600
C 2,000 40 80,000 2,640 38 1,00,320
4,000 28.5 1,14,000 4,400 1,33,760

E Sales quantity variance (SQV) = (Total budgeted sales Actual sales) Weighted SSP per unit =
(4,000 units 4,400 units) Rs 28.50 = Rs 11,400 F
EE Sales-mix variance (SMV) = (RSQ AQ) SSP
Product A: (3 4,400) 10 or 1,320 units 880 units) Rs 15 = Rs 6,600 U
B: (2 4,400) 10 or 880 units 880 units) Rs 20 = Nil
C: (5 4,400) 10 or 2,200 units 2,640 units) Rs 40 = 17,600 F
11,000 F
Standard proportion is 3:2:5 for products A, B and C, respectively.
EEE Sales price variance (SPV) = (SSP ASP) AQ
Product A: (Rs 15 Rs 18) 880 = Rs 2,640 F
Product B: (Rs 20 Rs 20) 880 = Nil
 Revenue and Profit Variance Analysis 20.3

Product C: (Rs 40 Rs 38) 2,640 =5,280 U

2,640 U
EL Total sales variance (SRV) (Budgeted sales Actual sales) = (Rs 1,14,000 Rs 1,33,760) =
Rs 19,760 F
Alternatively,
SQV Rs 11,400 F
SMV 11,000 F
SPV (2,640) U
19,760 F

Solution RQ.20.12
) Sales Variances
Sales value variance (SRV) = (Budgeted sales revenue Actual sales revenue) = (Rs 30,000 Rs 26,600)
= Rs 3,400 U
(i) Sales price variance (SSP ASP) AQ sold = (Rs 15 Rs 14) 1,900 = Rs 1,900 U
(ii) Sales volume: variance (SQ AQ) SSP = (2,000 units 1,900 units) Rs 15 = Rs 1,500 U

* Cost of Sales Variance (Cost Variance)

(Standard cost of sales per unit Actual cost per unit) AQ sold = (Rs 12.00 Rs 10.00) 1,900 = Rs 3,800 F

+ Profit Variances:

Overall profit variance (Budgeted profit Actual profit) = (Rs 6,000 Rs 7,600) = Rs 1,600 F
(i) Sales price variance: Rs 1,900 U (calculated above)
(ii) Sales volume variance: (SQ AQ) SP per unit = (2,000 units 1,900 units) Rs 3 = Rs 300 U
(iii) Cost variance: Rs 3,800 F

Reconciliation Statement of Budgeted Profit with Actual Profit

Budgeted profit Rs 6,000
Add cost variance (favourable) 3,800
Less sales price variance (unfavourable) 1,900
Less sales volume variance (unfavourable) 300
Actual profit 7,600

Solution RQ.20.13
Product Standard (budgeted) Actual
SQ SSP TSR SC SP TSP AQ ASP TSR AC AP ATP
(units) (units)
X 3,000 Rs 20 Rs 60,000 Rs 12 Rs 8 Rs 24,000 4,000 Rs 18 Rs 72,000 Rs 12* Rs 6 Rs 24,000
Y 2,000 10 20,000 6 4 8,000 2,500 11 27,500 6 5 12,500
5,000 16 80,000 6.4 32,000 6,500 99,500 36,500
*AC is assumed to be equal to SC.

Sales Variances:
Sales variance (SRV): (Budgeted sales Actual sales) = (Rs 80,000 Rs 99,500) = Rs 19,500 F
E Sales price variance (SPV) = (SSP ASP) AQ
Product X : (Rs 20 Rs 18) 4,000 units = Rs 8,000 U
Y : (Rs 10 Rs 11) 2,500 units = 2,500 F
5,500 U
20.4 Management AccountingOLC

EE Sales-mix sub-variance (SMSV) = (RSQ AQ) SSP

Product X: (6,500 3) 5* or 3,900 units 4,000 units) Rs 20 = Rs 2,000 F
Y: (6,500 2) 5 or 2,600 units 2,500 units) Rs 10 = 1,000 U
1,000 F
*Standard proportion is 3 : 2
EEE Sales volume sub-variance (SVSV): = (Total budgeted sales of all products Actual sales)
Standard weighted selling price per unit = (5,000 units 6,500 units) Rs 16 = Rs 24,000 F
Profit Variances:
Profit variance: (Budgeted profit Actual profit) = (Rs 32,000 Rs 36,500) = Rs 4,500 F
E Sales price variance: Rs 5,500 U (calculated above)
EE Sales-mix sub-variance = (RSQ AQ) SP per unit
Product X : (3,900 units 4,000 units) Rs 8 = Rs 800 F
Y : (2,600 units 2,500 units) Rs 4 = 400 U
400 F
EEE Sales volume sub-variance = (Total budgeted sales Actual sales) Weighted SP per unit =
(5,000 units 6,500 units) Rs 6.40 = Rs. 9,600 F
EL Cost variance = Nil
Solution RQ.20.14
Product Standard Actual
SQ (units) SSP TSR AQ (units) ASP TAR
X 15,000 Rs 5 Rs 75,000 18,000 Rs 5.10 Rs 91,800
Y 9,000 8 72,000 10,000 7.00 70,000
Z 6,000 10 60,000 5,000 9.50 47,500
30,000 6.9 2,07,000 33,000 6.34 2,09,300

Sales variance (SRV) = (Budgeted sales Actual sales) = (Rs 2,07,000 Rs 2,09,300) = Rs 2,300 F
E Sales price variances (SPV) = (SSP ASP) AQ
Product X: (Rs 5 Rs 5.10) 18,000 units = Rs 1,800 F
Y: (Rs 8 Rs 7.00) 10,000 units = 10,000 U
Z: (Rs 10 Rs 9.50) 5,000 units = 2,500 U
10,700 U
EE Sales-mix sub-variance = (RSQ AQ) SSP
Product X: (33,000 15) 30 or 16,500 units 18,000 units) Rs 5 = Rs 7,500 F
Y: (33,000 9) 30 or 9,900 units 10,000 units) Rs 8 = 800 F
Z: (33,000 6) 30 or 6,600 units 5,000 units) Rs 10 = 16,000 U
7,700 U
EEE Sales volume sub-variance (Budgeted sales of all products Actual sales) Weighted SSP
= (30,000 units 33,000 units) Rs 6.90 = Rs 20,700 F
Cost information (standard and actual) is required for determining profit variances.