Budgeting Basics and Beyond

8.4. Sales Variances

Sales standards may be established to control and measure the effectiveness of the marketing operations as well as for other relevant purposes such as stimulating sales, reallocating sales, resources, and providing incentive awards. The usual standard set for a salesperson, branch, or territory is a sales quota. Although the sales quota typically is expressed in dollars, it may also be expressed in volume. Other types of standards that may be set to evaluate sales efforts are number of calls, order size, gross profit obtained, new customers obtained, and number of regular customers retained.

Sales variances are computed to gauge the performance of the marketing function.

Example 1

Western Corporation 's budgeted sales for 20X1 were

Product A 10,000 units at $6.00 per unit	$ 60,000
Product B 30,000 units at $8.00 per unit	240,000
Expected sales revenue	$300,000

Actual sales for the year were

Product A 8,000 units at $6.20 per unit	$ 49,600
Product B 33,000 units at $7.70 per unit	254,100
Actual sales revenue	$303,700

There is a favorable sales variance of $3,700, consisting of the sales price variance and the sales volume variance.

The sales price variance equals (Actual Selling Price versus Budgeted Selling Price) × Actual Units Sold

Product A ($6.20 versus $6.00 × 8,000)	$1,600 Favorable
Product B ($7.70 versus $8.00 × 33,000)	9,900 Unfavorable
Sales price variance	$8,300 Unfavorable

The sales volume variance equals (Actual Quantity versus Budgeted Quantity) × Budgeted ...