{"id":1098,"date":"2021-04-14T01:12:06","date_gmt":"2021-04-14T01:12:06","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&#038;p=1098"},"modified":"2021-08-05T03:58:36","modified_gmt":"2021-08-05T03:58:36","slug":"sales-volume-variance-2","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/chapter\/sales-volume-variance-2\/","title":{"raw":"Sales Volume Variance","rendered":"Sales Volume Variance"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Compute sales volume variances<\/li>\r\n<\/ul>\r\n<\/div>\r\nThe <strong>sales volume variance<\/strong> is computed by comparing our original static budget to the budget we would have made if we had somehow known in advance exactly how many units we would sell. In other words, for GelSoft, we would compare the static budget to our 180,000 recalculated (flexible) budget.\r\n<div align=\"left\">\r\n<table class=\"fin-table gridded\"><caption class=\"u-clearfix\">\r\n<div>GelSoft<\/div>\r\n<div>Flexible Budget Performance Report<\/div>\r\n<\/caption>\r\n<thead>\r\n<tr>\r\n<th class=\"c\" rowspan=\"2\" scope=\"col\"><\/th>\r\n<th class=\"c highlight\" rowspan=\"2\" scope=\"col\">Flexible Budget<\/th>\r\n<th class=\"c\" rowspan=\"2\" scope=\"col\">Sales Volume Variance<\/th>\r\n<th class=\"c\" rowspan=\"2\" scope=\"col\">F or U<\/th>\r\n<th class=\"c highlight\" rowspan=\"2\" scope=\"col\">Static Budget<\/th>\r\n<th class=\"c\" rowspan=\"2\" scope=\"col\">Budgeted Amounts per Unit<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Units<\/td>\r\n<td class=\"r highlight\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 180,000<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r highlight\">\u00a0 \u00a0 \u00a0 \u00a0 172,405<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales Revenue<\/td>\r\n<td class=\"r highlight\">$ \u00a0 6,120,000<\/td>\r\n<td class=\"r highlight\">$ \u00a0 258,230<\/td>\r\n<td class=\"r highlight\">F<\/td>\r\n<td class=\"r highlight\">$\u00a0 5,861,770<\/td>\r\n<td class=\"r highlight\">$ \u00a0 \u00a0 34.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Variable Costs<\/td>\r\n<td class=\"r highlight\">\u00a0 \u00a0 \u00a0 3,362,400<\/td>\r\n<td class=\"r highlight\">$ \u00a0 141,875<\/td>\r\n<td class=\"r highlight\">U<\/td>\r\n<td class=\"r highlight\">3,220,525<\/td>\r\n<td class=\"r highlight\">$ \u00a0 \u00a0 18.68<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Contribution Margin<\/td>\r\n<td class=\"r highlight\">\u00a0 \u00a0 \u00a0 2,757,600<\/td>\r\n<td class=\"r highlight\">$ \u00a0 116,355<\/td>\r\n<td class=\"r highlight\">F<\/td>\r\n<td class=\"r highlight\">2,641,245<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Fixed Costs<\/td>\r\n<td class=\"r highlight\">\u00a0 2,452,694<\/td>\r\n<td class=\"r highlight\">-<\/td>\r\n<td class=\"r highlight\">N\/A<\/td>\r\n<td class=\"r highlight\">2,452,694<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating Income<\/td>\r\n<td class=\"r highlight line-double\">$ \u00a0 \u00a0 304,906<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r highlight\">$\u00a0 \u00a0116,355<\/td>\r\n<td class=\"r highlight line-double\">F<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r highlight line-double\">$\u00a0 \u00a0 188,551<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nWhat we see is that sales in dollars were more than a quarter of a million better than expected because of the volume increase, despite the slightly lower average sales price, so we have a favorable sales volume variance.\r\n\r\nHowever, as we would expect, the increased volume carries with it an increase in overall variable costs. Not per unit, because we are using the original budget number for the per-unit variable costs, but total variable costs increase as total units increase. That creates an unfavorable overall variance between the original (static) budget and the recalculated (flexible) budget. It\u2019s unfavorable because it reduces the bottom line.\r\n\r\nFixed costs would have been budgeted the same regardless of sales volume unless we knew that we were exceeding the relevant range for those projected fixed costs, so there won\u2019t be a variance there.\r\n\r\nOverall, we had a favorable sales volume variance equal to the additional contribution margin. We sold an additional 7,595 units, and each one contributes $15.32 to fixed costs ($34 sales price minus $18.68 variable costs).\r\n<p style=\"padding-left: 30px;\">7595 X $15.32 = $116,355 (rounded to the nearest whole dollar)<\/p>\r\nNext, we'll combined the fixed budget variance and the sales volume variance into one performance report, but first, check your understanding of the sales volume variance.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\n[ohm_question hide_question_numbers=1]220611[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Compute sales volume variances<\/li>\n<\/ul>\n<\/div>\n<p>The <strong>sales volume variance<\/strong> is computed by comparing our original static budget to the budget we would have made if we had somehow known in advance exactly how many units we would sell. In other words, for GelSoft, we would compare the static budget to our 180,000 recalculated (flexible) budget.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table gridded\">\n<caption class=\"u-clearfix\">\n<\/caption>\n<\/table>\n<\/div>\n<div>Flexible Budget Performance Report<\/div>\n<p>Flexible Budget<br \/>\nSales Volume Variance<br \/>\nF or U<br \/>\nStatic Budget<br \/>\nBudgeted Amounts per Unit<\/p>\n<p>Units<br \/>\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 180,000<\/p>\n<p>\u00a0 \u00a0 \u00a0 \u00a0 172,405<\/p>\n<p>Sales Revenue<br \/>\n$ \u00a0 6,120,000<br \/>\n$ \u00a0 258,230<br \/>\nF<br \/>\n$\u00a0 5,861,770<br \/>\n$ \u00a0 \u00a0 34.00<\/p>\n<p>Variable Costs<br \/>\n\u00a0 \u00a0 \u00a0 3,362,400<br \/>\n$ \u00a0 141,875<br \/>\nU<br \/>\n3,220,525<br \/>\n$ \u00a0 \u00a0 18.68<\/p>\n<p>Contribution Margin<br \/>\n\u00a0 \u00a0 \u00a0 2,757,600<br \/>\n$ \u00a0 116,355<br \/>\nF<br \/>\n2,641,245<\/p>\n<p>Fixed Costs<br \/>\n\u00a0 2,452,694<br \/>\n&#8211;<br \/>\nN\/A<br \/>\n2,452,694<\/p>\n<p>Operating Income<br \/>\n$ \u00a0 \u00a0 304,906<span class=\"u-sr-only\">Double line<\/span><br \/>\n$\u00a0 \u00a0116,355<br \/>\nF<span class=\"u-sr-only\">Double line<\/span><br \/>\n$\u00a0 \u00a0 188,551<span class=\"u-sr-only\">Double line<\/span><\/p>\n<p>&nbsp;<\/p>\n<p>What we see is that sales in dollars were more than a quarter of a million better than expected because of the volume increase, despite the slightly lower average sales price, so we have a favorable sales volume variance.<\/p>\n<p>However, as we would expect, the increased volume carries with it an increase in overall variable costs. Not per unit, because we are using the original budget number for the per-unit variable costs, but total variable costs increase as total units increase. That creates an unfavorable overall variance between the original (static) budget and the recalculated (flexible) budget. It\u2019s unfavorable because it reduces the bottom line.<\/p>\n<p>Fixed costs would have been budgeted the same regardless of sales volume unless we knew that we were exceeding the relevant range for those projected fixed costs, so there won\u2019t be a variance there.<\/p>\n<p>Overall, we had a favorable sales volume variance equal to the additional contribution margin. We sold an additional 7,595 units, and each one contributes $15.32 to fixed costs ($34 sales price minus $18.68 variable costs).<\/p>\n<p style=\"padding-left: 30px;\">7595 X $15.32 = $116,355 (rounded to the nearest whole dollar)<\/p>\n<p>Next, we&#8217;ll combined the fixed budget variance and the sales volume variance into one performance report, but first, check your understanding of the sales volume variance.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p><iframe loading=\"lazy\" id=\"ohm220611\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=220611&theme=oea&iframe_resize_id=ohm220611\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-1098\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Sales Volume Variance. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":364389,"menu_order":24,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Sales Volume Variance\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-1098","chapter","type-chapter","status-publish","hentry"],"part":33,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/1098","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/users\/364389"}],"version-history":[{"count":8,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/1098\/revisions"}],"predecessor-version":[{"id":2525,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/1098\/revisions\/2525"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/parts\/33"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/1098\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/media?parent=1098"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=1098"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/contributor?post=1098"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/license?post=1098"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}