High School

Central Electronics sells smartphones. During June 2022, it sold 825 smartphones at a $950 average price each. The June 2022 budget included sales of 850 smartphones at an average price of $900 each. Compute the sales price variance and the sales volume variance for June 2022.

Answer :

To compute the sales price variance and the sales volume variance, we need to understand each component and how to calculate them.

Sales Price Variance is the difference between the actual selling price and the budgeted selling price, multiplied by the actual number of units sold. It shows whether the company sold its products at a higher or lower price than expected.

Formula:
[tex]\text{Sales Price Variance} = (\text{Actual Price} - \text{Budgeted Price}) \times \text{Actual Quantity Sold}[/tex]

Substituting the given figures:
[tex]\text{Actual Price} = \$950, \quad \text{Budgeted Price} = \$900, \quad \text{Actual Quantity Sold} = 825[/tex]
[tex]\text{Sales Price Variance} = (950 - 900) \times 825 = 50 \times 825 = \$41,250[/tex]
The sales price variance is $41,250, which indicates Central Electronics sold the smartphones at a higher price than budgeted.

Sales Volume Variance measures the impact on revenue of selling more or fewer units than budgeted, evaluated at the budgeted price.

Formula:
[tex]\text{Sales Volume Variance} = (\text{Actual Quantity Sold} - \text{Budgeted Quantity}) \times \text{Budgeted Price}[/tex]

Substituting the given figures:
[tex]\text{Budgeted Quantity} = 850, \quad \text{Budgeted Price} = \$900[/tex]
[tex]\text{Sales Volume Variance} = (825 - 850) \times 900 = (-25) \times 900 = -\$22,500[/tex]
The sales volume variance is -$22,500, which shows that fewer units were sold than planned, resulting in lower revenue than expected.

In summary:

  • The sales price variance of $41,250 indicates a favorable outcome, as products were sold at a higher price than budgeted.
  • The sales volume variance of -$22,500 indicates an unfavorable outcome, as fewer products were sold than planned.

Overall, the sales variance provides insight into how pricing and sales volume impacted financial performance for Central Electronics in June 2022.

To compute the sales price variance and sales volume variance, we need to follow these steps:

  1. Calculate the Sales Price Variance:

    The sales price variance measures the impact on revenue due to the actual selling price being different from the budgeted selling price.

    • Formula:
      [tex]\text{Sales Price Variance} = (\text{Actual Selling Price} - \text{Budgeted Selling Price}) \times \text{Actual Quantity Sold}[/tex]

    • Given Data:

      • Actual Selling Price = $950
      • Budgeted Selling Price = $900
      • Actual Quantity Sold = 825

    • Calculation:
      [tex]\text{Sales Price Variance} = (950 - 900) \times 825 = 50 \times 825 = 41,250[/tex]

    The sales price variance is $41,250, which is favorable because the actual selling price was higher than the budgeted selling price.

  2. Calculate the Sales Volume Variance:

    The sales volume variance measures the impact on revenue due to the difference between the actual quantity sold and the budgeted quantity.

    • Formula:
      [tex]\text{Sales Volume Variance} = (\text{Actual Quantity Sold} - \text{Budgeted Quantity Sold}) \times \text{Budgeted Selling Price}[/tex]

    • Given Data:

      • Actual Quantity Sold = 825
      • Budgeted Quantity Sold = 850
      • Budgeted Selling Price = $900

    • Calculation:
      [tex]\text{Sales Volume Variance} = (825 - 850) \times 900 = -25 \times 900 = -22,500[/tex]

    The sales volume variance is -$22,500, which is unfavorable because fewer smartphones were sold than budgeted.

To summarize, for June 2022, Central Electronics had a favorable sales price variance of $41,250 and an unfavorable sales volume variance of -$22,500.

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