15.6.4: Sales-Quantity Variance

Sales-Quantity Variance

The sales-quantity variance is the difference between (1) budgeted contribution margin based on actual units sold of all products at the budgeted mix and (2) contribution margin in the static budget (which is based on budgeted units of all products to be sold at budgeted mix). The formula and computations (using data from section Sales Variances) are as follows:

The table depicts the quantity actual total Provalues sold minus budgeted total Provalues sold times the budgeted sales-mix percentages times budgeted contribution margin per unit equals sales-quantity variance. The details of the table are as follows:

1. Wholesale

The quantity actual total Provalues sold minus budgeted total Provalues sold: 150,000 units minus 155,000 units

Times

Budgeted sales-mix percentages: 0.60

Times

Budgeted contribution margin per unit: 225 dollars per unit

Equals

Sales-mix variance: 675,000 dollars U

2. Business-sales

The quantity actual total Provalues sold minus budgeted total Provalues sold: 150,000 units minus 155,000 units

Times

Budgeted sales-mix percentages: 0.40

Times

Budgeted contribution margin per unit: 275 dollars per unit

Equals

Sales-mix variance: 550,000 dollars U

3. Total sales-quantity variance: 1,225,000 dollars U

This variance is unfavorable when actual units of all products sold are less than the budgeted units of all products sold. The Provalue Division sold 5,000 fewer Provalues than were budgeted, resulting in a $1,225,000 sales-quantity variance (also equal to budgeted contribution margin per composite unit for the budgeted sales mix times fewer units sold, $$245 \times 5,000$ ). Managers would want to probe the reasons for the decrease in sales. Did lower sales come as a result of a competitor’s aggressive marketing? Poorer customer service? Or decline in the overall market? Managers can gain additional insight into the causes of the sales-quantity variance by analyzing changes in Provalue Division’s share of the total industry market and in the size of that market. The sales-quantity variance can be decomposed into market-share and market-size variances, as we describe in the next section.

Try It! 15-4

Forever Corp. buys and sells two types of sunglasses in New York: Duma and Kool. Budgeted and actual results for 2020 are as follows:

Product	Budget for 2020			Actual for 2020
Product	Selling Price	Variable Cost per Unit	Units Sold	Selling Price	Variable Cost per Unit	Units Sold
Duma	$23	$19	88,000	$21	$18	90,000
Kool	$29	$24	132,000	$31	$25	110,000

Compute the total sales-volume variance, the total sales-mix variance, and the total sales-quantity variance. (Calculate all variances in terms of contribution margin.) Show results for each product in your computations.