Definition§
In standard costing, Sales Margin Price Variance (also known as Selling Price Variance) is the variance that occurs as a result of the difference between the actual sales revenue earned versus the revenues that would have been earned had the actual sales quantities been sold at the budgeted or standard selling prices. This variance highlights the impact of deviations in selling prices from what was originally planned. A positive variance (favorable) indicates higher actual prices than budgeted, while a negative variance (adverse) reflects lower actual prices than budgeted.
Formula§
Examples§
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Example 1: Favorable Variance
- Budgeted Selling Price: $50 per unit
- Actual Selling Price: $55 per unit
- Actual Quantity Sold: 1,000 units
- Sales Margin Price Variance Calculation: \[ (55 - 50) \times 1,000 = 5 \times 1,000 = $5,000 \text{ (Favorable)} \]
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Example 2: Adverse Variance
- Budgeted Selling Price: $50 per unit
- Actual Selling Price: $45 per unit
- Actual Quantity Sold: 1,000 units
- Sales Margin Price Variance Calculation: \[ (45 - 50) \times 1,000 = -5 \times 1,000 = -$5,000 \text{ (Adverse)} \]
Frequently Asked Questions§
Q1: What causes sales margin price variance? A1: This variance arises from differences between the actual selling price and the budgeted or standard selling price. Causes include changes in market conditions, pricing strategies, discount offers, and competition.
Q2: How is sales margin price variance used in financial analysis? A2: It helps businesses understand the impact of pricing decisions on profitability, allowing management to make informed decisions about pricing, budgeting, and sales strategies.
Q3: Can sales margin price variance be controlled? A3: While external factors like market demand cannot be fully controlled, companies can manage internal factors such as pricing policies and marketing strategies to influence selling prices.
Q4: What is the difference between sales volume variance and sales margin price variance? A4: Sales volume variance measures the difference in profit due to the change in the number of units sold versus the budgeted quantity. In contrast, sales margin price variance focuses on the differences between actual and standard selling prices.
Related Terms§
- Standard Costing: A cost accounting method that assigns expected costs to products, helping in variance analysis to manage operational effectiveness.
- Variance Analysis: The process of analyzing differences between budgeted and actual financial performance, aiming to understand reasons for variances.
- Sales Margin Volume Variance: The difference between the actual sales quantity and the budgeted sales quantity, multiplied by the standard profit margin per unit.
References§
Online Resources§
Suggested Books§
- “Managerial Accounting” by Ray H. Garrison, Eric W. Noreen, and Peter C. Brewer: A comprehensive guide on cost accounting and variance analysis.
- “Cost Accounting: A Managerial Emphasis” by Charles T. Horngren, Srikant M. Datar, and Madhav V. Rajan: This book provides detailed insights into costing methods and variance analysis.
Accounting Basics: “Selling Price Variance” Fundamentals Quiz§
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