Question

Comp Wiz sells computers. During May 2017, it sold 350 computers at a \(1,200 average price each. The May 2017 fixed budget included sales of 365 computers at an average price of \)1,100 each.

1. Compute the sales price variance and the sales volume variance for May 2017.

2. Interpret the findings.

Short answer

The sale price variance isfavorable.

The sales volume variance isunfavorable.

Step-by-step solution

Meaning of Sales Price Variance

The sales price variance indicates the difference between actual and budgeted sales price associated with particular product. Ifactual sales price is higher than budgeted, then thevariance is favorable.

Computation of variances

$\begin{array}{c}\mathbf{\text{Salespricevariance}}\mathbf{=}\mathbf{(}\mathbf{\text{Actualquantity}}\mathbf{\times }\mathbf{\text{Actualprice}}\mathbf{)}\mathbf{-}\mathbf{(}\mathbf{\text{Actualquantity}}\mathbf{\times }\mathbf{\text{Standardprice}}\mathbf{)}\\ \mathbf{=}\mathbf{(}\mathbf{350}\mathbf{\times }\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{200}\mathbf{)}\mathbf{-}\mathbf{(}\mathbf{350}\mathbf{\times }\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{100}\mathbf{)}\\ \mathbf{=}\mathbf{\$}\mathbf{420}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{385}\mathbf{,}\mathbf{000}\\ \mathbf{=}\mathbf{\$}\mathbf{35}\mathbf{,}\mathbf{000}\mathbf{\left(}\mathbf{\text{Favorable}}\mathbf{\right)}\end{array}$

$\begin{array}{c}\mathbf{\text{Salesvolumevariance}}\mathbf{=}\mathbf{(}\mathbf{\text{Actualquantity}}\mathbf{\times }\mathbf{\text{Standardprice}}\mathbf{)}\mathbf{-}\mathbf{(}\mathbf{\text{Standardquantity}}\mathbf{\times }\mathbf{\text{Standardprice}}\mathbf{)}\\ \mathbf{=}\mathbf{(}\mathbf{350}\mathbf{\times }\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{100}\mathbf{)}\mathbf{-}\mathbf{(}\mathbf{365}\mathbf{\times }\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{100}\mathbf{)}\\ \mathbf{=}\mathbf{385}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{401}\mathbf{,}\mathbf{500}\\ \mathbf{=}\mathbf{16}\mathbf{,}\mathbf{500}\mathbf{\left(}\mathbf{\text{Unfavorable}}\mathbf{\right)}\end{array}$

Interpretation

As per the above calculations, the sales price variance is favorable because the actual price is higher than the standard price.

At the same time, the sales volume variance is unfavorable because the actual quantity is less than the budgeted quantity.