Selling Price Variance

Definition§

Selling Price Variance is a financial metric used to determine the impact of the difference between the actual selling price and the standard (or budgeted) selling price of goods or services on a company’s revenues. This variance is calculated by multiplying the difference between the actual and budgeted selling prices by the actual quantity sold. The formula is:

$$\text{Selling Price Variance} = (\text{Actual Selling Price} - \text{Budgeted Selling Price}) \times \text{Actual Quantity Sold}$$

Examples§

Example 1§

Assume a company had budgeted to sell a product for $50 per unit but actually sold it for $55 per unit. The company sold 200 units during the period. The Selling Price Variance would be:

\[ ($55 - $50) \times 200 = $5 \times 200 = $1000 \]

Example 2§

A company expected to sell a product at $20 per unit but reduced the selling price to $18 per unit to boost sales. They sold 500 units. The Selling Price Variance would be:

\[ ($18 - $20) \times 500 = -$2 \times 500 = -$1000 \]

A negative variance indicates that the actual selling price was lower than the budgeted price.

Frequently Asked Questions§

Q1: Why is Selling Price Variance important?

• Selling Price Variance helps businesses understand the impact of price deviations on revenue. It can identify pricing strategy effectiveness and help in future budgeting.

Q2: How can companies improve their Selling Price Variance?

• Companies can improve their Selling Price Variance by better market research, adjusting pricing strategies, optimizing cost structures, and enhancing product value propositions.

Q3: What does a positive Selling Price Variance indicate?

• A positive Selling Price Variance indicates that the actual selling price was higher than the budgeted price, leading to an increase in revenue.

Q4: What does a negative Selling Price Variance mean?

• A negative Selling Price Variance means that the actual selling price was lower than the budgeted price, resulting in lower than expected revenue.

Q5: Is Selling Price Variance the same as Sale Volume Variance?

• No, Selling Price Variance focuses on the price per unit, while Sale Volume Variance looks at the difference in the quantity of units sold versus the expected quantity.

Related Terms§

Sales Margin Price Variance:

• Definition: The difference between the budgeted sales margin and the actual sales margin, multiplied by the actual number of units sold.
• Formula: $$(\text{Actual Sales Margin} - \text{Budgeted Sales Margin}) \times \text{Actual Quantity Sold}$$

Sales Volume Variance:

• Definition: Measures the impact on profit of a difference between the actual number of units sold and the expected number of units.
• Formula: $$(\text{Actual Quantity Sold} - \text{Budgeted Quantity Sold}) \times \text{Budgeted Contribution Margin per Unit}$$

Online Resources§

• Investopedia: What is Variance Analysis?
• AccountingTools: Selling Price Variance
• Business Case Studies: Variance analysis

Suggested Books for Further Studies§

• “Managerial Accounting” by Ray H. Garrison, Eric W. Noreen, and Peter C. Brewer
  • Provides an in-depth look into various accounting metrics, including selling price variance.
• “Financial & Managerial Accounting” by Jerry J. Weygandt, Paul D. Kimmel, and Donald E. Kieso
  • A comprehensive guide covering all aspects of financial and managerial accounting.
• “Accounting: Tools for Business Decision Making” by Paul Kimmel, Jerry Weygandt, and Donald Kieso
  • Offers practical insights and tools necessary for managerial decision-making.

Accounting Basics: “Selling Price Variance” Fundamentals Quiz§

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