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 ...
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