Management Accounting · Monitoring performance and reporting

Sales Variances and Operating Statements for ACCA Management Accounting

Updated 11 October 2026 · Fact-checked

Sales variances explain why actual profit differs from budget because of selling price and units sold. Sales price variance is (actual price − standard price) × actual units. Sales volume variance is (actual units − budget units) × standard profit per unit, or standard contribution under marginal costing. An operating statement reconciles budget profit to actual profit.

Understand Sales Variances and Operating Statements

A budget sets a planned profit. Actual profit is almost never the same. Variance analysis splits the gap into pieces, so managers can see what caused it and who is responsible.

For sales there are two causes. You sold at a different price from the standard. Or you sold a different number of units from the budget. The first is the sales price variance. The second is the sales volume variance.

The volume variance is valued at the standard profit per unit, not the selling price. Extra units earn only their profit. The costs of making them are dealt with in the cost variances. Under absorption costing you use the standard profit per unit (price less full standard cost). Under marginal costing you use the standard contribution per unit (price less standard variable cost). This is why the same sales volume gives different variances under the two methods.

An operating statement pulls everything together. You start with budgeted profit, add favourable variances, subtract adverse ones, and finish at actual profit. Every variance has a label: F if it increases profit, A if it reduces profit. The statement is a check as well as a report. If it does not reach the actual profit, something is missing or has the wrong sign.

Key formulas to remember

Sales price variance: (Actual selling price − Standard selling price) × Actual units sold; Positive result is favourable. A higher price than standard increases profit.
Sales volume variance (absorption costing): (Actual units sold − Budgeted units) × Standard profit per unit; Selling more than budget is favourable. Standard profit = standard price − standard full cost.
Sales volume variance (marginal costing): (Actual units sold − Budgeted units) × Standard contribution per unit; Standard contribution = standard price − standard variable cost.
Operating statement layout: Budgeted profit ± sales variances ± cost variances = Actual profit; Add favourable variances and subtract adverse ones.
Alternative price check: Actual revenue − (Actual units × Standard price); Gives the same sales price variance. Useful as a quick cross-check.

How to solve Sales Variances and Operating Statements questions

Use this order for any sales variance or operating statement question.

1Read whether the question uses absorption or marginal costing. This decides the profit per unit used for the volume variance.
2Write down the budget and actual figures: units, price and standard cost per unit. Label them clearly.
3Work out the standard profit per unit (absorption) or standard contribution per unit (marginal).
4Calculate the sales price variance using actual units sold. Mark it F or A.
5Calculate the sales volume variance using the difference in units. Mark it F or A.
6Calculate or list the cost variances given in the question. Mark each F or A.
7Build the operating statement: budgeted profit, then each variance with the right sign, ending at the calculated actual profit.
8Check the total against the actual profit if the question gives it. If it does not match, recheck signs and the costing method.

Quickest way: Sign-first shortcut for objective tests

When to use it: Use it in Section A questions, where you need one variance or a final profit figure fast.

Decide the sign by logic before you calculate. Price higher than standard is F. Units sold higher than budget is F.
For price, subtract standard from actual price and multiply by actual units. Do not use budget units.
For volume, take the unit difference first, then multiply by profit per unit (or contribution per unit if marginal costing).
In an operating statement, treat F as plus and A as minus. Add them up on your calculator in one pass.
Check that your answer is one of the options with the right F or A label. Options often differ only by the label.

Common mistakes in Sales Variances and Operating Statements

Using budgeted units in the sales price variance.
Students mix it up with the volume variance, which uses budget units.
Fix: Price variance always uses actual units sold. Price is about what you actually sold, not what you planned.
Valuing the volume variance at selling price instead of profit per unit.
It feels natural to value extra sales at the price they were sold for.
Fix: Use standard profit (absorption) or standard contribution (marginal). Costs of extra units are picked up elsewhere.
Using the wrong profit per unit for the costing method.
Students forget to check whether the question uses marginal or absorption costing.
Fix: Check the method first. Under marginal costing use contribution per unit and do not expect a fixed overhead volume variance.
Getting F and A the wrong way round.
Students apply the cost variance rule (lower is better) to sales figures.
Fix: For sales, higher is better. Ask: did this raise or lower profit? Label it from the answer to that question.
Adding all variances without regard to sign in the operating statement.
Students list numbers and forget which are adverse.
Fix: Write F or A beside each figure, then add the Fs and subtract the As. Check the total against actual profit.
Starting the statement from the wrong profit figure.
Students start with the flexed or actual figure instead of the original budget.
Fix: Start from the original budgeted profit. The sales volume variance already deals with the change in activity.

Worked examples

Example 1

A company budgets to sell 5,000 units at $20 each. Standard full cost is $12 per unit. It actually sells 5,400 units at $19.50 each. It uses absorption costing. Calculate the sales price variance and the sales volume variance.

Show the solution

Standard profit per unit = $20 − $12 = $8.
Sales price variance = ($19.50 − $20) × 5,400 = −$0.50 × 5,400 = −$2,700, i.e. $2,700 adverse. The actual price is lower than standard, so this is adverse.
Sales volume variance = (5,400 − 5,000) × $8 = 400 × $8 = $3,200. More units sold than budget, so this is favourable.
Check: budgeted profit is 5,000 × $8 = $40,000. Adding $3,200 and subtracting $2,700 gives $40,500. Check: flexed profit at standard = 5,400 × $8 = $43,200; less price variance $2,700 = $40,500, which equals $40,000 + $3,200 − $2,700.

Answer: Sales price variance $2,700 adverse; sales volume variance $3,200 favourable.

Example 2

A company uses marginal costing. Budget: sell 5,000 units at $20, standard variable cost $11 per unit, fixed overheads $5,000. Budgeted profit is $40,000. Actual sales were 5,400 units at $19.50. Other variances: material price $1,500 F, material usage $900 A, labour rate $600 A, labour efficiency $400 F, fixed overhead expenditure $700 A. Prepare the operating statement and find actual profit.

Show the solution

Standard contribution per unit = $20 − $11 = $9. Check budget: 5,000 × $9 = $45,000, less fixed overheads $5,000 = $40,000. This agrees.
Sales volume variance = (5,400 − 5,000) × $9 = $3,600 F.
Sales price variance = ($19.50 − $20) × 5,400 = $2,700 A.
Start: budgeted profit $40,000.
Add sales volume variance $3,600 F: $43,600. Subtract sales price variance $2,700 A: $40,900.
Add material price $1,500 F: $42,400. Subtract material usage $900 A: $41,500.
Subtract labour rate $600 A: $40,900. Add labour efficiency $400 F: $41,300.
Subtract fixed overhead expenditure $700 A: $40,600.
Note: under marginal costing there is no fixed overhead volume variance. For comparison, absorption costing would use a fixed overhead rate of $5,000 ÷ 5,000 = $1 per unit, giving a standard full cost of $12 and a standard profit of $8 per unit. The absorption volume variance would then be 400 × $8 = $3,200. The marginal costing volume variance of $3,600 is $400 higher, because contribution of $9 per unit is $1 higher than the standard profit (the fixed cost of $1 per unit is not charged to units).

Answer: Actual profit is $40,600.

Exam tips

Always check the costing method first. Sales volume variance in marginal costing uses contribution per unit, and the same facts give a different answer in absorption costing.
In multiple choice questions, wrong options are often the right number with the wrong F or A label. Decide the sign by logic before you pick.
In Section B operating statement questions, start from budgeted profit and keep every variance in a clear list with F or A. Part marks follow correct individual variances.
If a number entry question asks for a variance, check whether it wants the sign or label. Enter the figure in the format requested.
Practise cross-checking: your statement must end at actual profit. If the question gives actual profit, use it to catch errors quickly.

Practice questions from Monitoring performance and reporting

Sales Variances and Operating Statements in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Sales Variances and Operating Statements: frequently asked questions

What is the difference between sales price and sales volume variance?

The sales price variance measures the effect on profit of selling at a different price from standard. The sales volume variance measures the effect of selling a different number of units from budget, valued at standard profit or contribution per unit. Together they explain the sales part of the profit difference.

Is sales volume variance different under marginal and absorption costing?

Yes. Under absorption costing you value the unit difference at standard profit per unit. Under marginal costing you value it at standard contribution per unit. Because contribution is higher than profit when fixed costs are absorbed into units, the two variances usually differ.

How do I prepare an operating statement that reconciles budget and actual profit?

Start with budgeted profit. Add each favourable variance and subtract each adverse variance, covering both sales and cost variances. The final line should equal actual profit. If it does not, recheck signs and the costing method.

Does a favourable sales price variance always mean good performance?

Not always. A higher price may have caused lower sales volume, so you should look at the price and volume variances together. Interpret them as a pair before judging the sales team.