Management Accounting · Reconciliation of budgeted and actual profit

Sales Price and Sales Volume Variances Explained

Updated 11 October 2026 · Fact-checked

The sales price variance compares actual revenue with actual units sold at the standard price. The sales volume profit variance compares actual and budgeted units, multiplied by standard profit per unit under absorption costing or standard contribution per unit under marginal costing. Favourable means more profit than budget.

Understand Sales Price and Sales Volume Variances

A budget sets a selling price and a number of units to sell. In practice, you sell a different number of units, at a different price. Sales variances split the profit difference into those two causes.

The sales price variance answers: what did the price change do to profit? Cost does not matter here. Only revenue changes. If you charged more than standard on the units you actually sold, the variance is favourable.

The sales volume variance answers: what did selling more or fewer units do to profit? You compare actual units with budgeted units. You then value the difference at a standard profit figure, not at selling price. Selling price would overstate the effect, because extra units also bring extra costs.

Which profit figure you use depends on the costing system. Under absorption costing, use standard profit per unit (standard price less standard full cost). Under marginal costing, use standard contribution per unit (standard price less standard variable cost). The price variance is the same under both. Only the volume variance changes.

The reason is fixed overheads. Absorption costing values each unit of volume difference at standard profit, which is after deducting the fixed overhead absorbed per unit. Marginal costing uses contribution because fixed costs are treated as a period cost.

Key formulas to remember

Sales price variance: (Actual price − Standard price) × Actual units sold; Or: Actual revenue − (Actual units × Standard price). Higher actual price is favourable. Same under absorption and marginal costing.
Sales volume profit variance (absorption costing): (Actual units sold − Budgeted units) × Standard profit per unit; More units than budget is favourable. Standard profit per unit = standard price − standard full absorption cost.
Sales volume contribution variance (marginal costing): (Actual units sold − Budgeted units) × Standard contribution per unit; Standard contribution per unit = standard price − standard variable cost.
Reconciliation to budget: Budgeted profit + Sales volume variance + Sales price variance + cost variances = Actual profit; Adverse variances are subtracted. Use the profit or contribution basis consistently.

How to solve Sales Price and Sales Volume Variances questions

Use this method for any sales variance question. It works under both costing systems.

1Read which costing system the question uses: absorption (profit) or marginal (contribution).
2Write down budgeted units, actual units sold, standard price, actual price and standard cost per unit.
3Work out the standard profit per unit (absorption) or standard contribution per unit (marginal).
4Calculate the sales price variance: (actual price − standard price) × actual units sold.
5Calculate the sales volume variance: (actual units − budgeted units) × standard profit or contribution per unit.
6Label each answer Favourable (F) or Adverse (A). Check the sign logic: higher price and higher volume are F.
7If asked, reconcile: budgeted profit plus or minus the variances equals actual profit, then check the total.

Quickest way: Two-line sales variance check

When to use it: Use in Section A multiple choice or number entry questions where only one variance is asked for.

For price: work out the price gap per unit, then multiply by actual units sold. Do not use budgeted units.
For volume: work out the unit gap (actual − budget), then multiply by standard profit or contribution per unit. Do not use selling price.
Decide F or A from the direction: more or higher than budget is F.
Scan the options. If two options differ only by sign, F or A is the trap, so recheck it.

Common mistakes in Sales Price and Sales Volume Variances

Valuing the volume variance at standard selling price.
Students think sales variance means revenue, so they use price.
Fix: Volume variance is a profit variance. Use standard profit per unit (absorption) or standard contribution per unit (marginal).
Using budgeted units in the price variance.
Students mix up the two formulas.
Fix: Price variance always uses actual units sold, because only actual sales were made at the actual price.
Using standard profit when the question says marginal costing.
Students copy the absorption method automatically.
Fix: Check the costing system first. Under marginal costing, strip out the fixed overhead per unit and use contribution.
Getting F and A the wrong way round.
Students subtract in the wrong order or forget the direction rule.
Fix: Higher actual price is F. Actual units above budget is F, as long as the standard margin is positive.
Using units produced instead of units sold.
Production and sales numbers appear together in the question.
Fix: Sales variances use units sold only. Ignore production and inventory changes.

Worked examples

Example 1

A company budgeted to sell 2,000 units at $50 each. Standard variable cost is $30 per unit and standard fixed overhead absorbed is $8 per unit. Actual sales were 2,200 units at $48 each. Calculate the sales price variance and the sales volume profit variance under absorption costing.

Show the solution

Standard profit per unit = 50 − 30 − 8 = $12.
Price variance = (48 − 50) × 2,200 = −$4,400, so $4,400 adverse.
Volume variance = (2,200 − 2,000) × 12 = 200 × 12 = $2,400 favourable.

Answer: Sales price variance $4,400 adverse; sales volume profit variance $2,400 favourable.

Example 2

Using the same data, calculate the sales volume variance under marginal costing. Then reconcile the difference between the two volume variances.

Show the solution

Standard contribution per unit = 50 − 30 = $20.
Volume variance = (2,200 − 2,000) × 20 = 200 × 20 = $4,000 favourable.
Price variance is unchanged at $4,400 adverse, because it does not use cost.
Difference in volume variances = 4,000 − 2,400 = $1,600.
Check: 200 extra units × $8 fixed overhead per unit = $1,600. The absorption volume variance is $1,600 lower because standard profit per unit ($12) is after deducting the $8 fixed overhead absorbed. Under absorption costing, this $1,600 is recovered in the fixed overhead volume variance, so it is not a real cost saving. Under marginal costing no fixed overhead is absorbed into units, so you use contribution.

Answer: Marginal costing sales volume contribution variance is $4,000 favourable. It is $1,600 higher than the absorption figure because of the $8 fixed overhead per unit on the 200 extra units.

Exam tips

Read the costing system in the first sentence. It decides which standard figure you use for volume.
Under absorption costing, standard profit per unit equals price minus full standard cost, including fixed overhead.
Section A often asks for one variance as number entry. Enter the number only, and check whether the question wants F or A.
In Section B, expect operating statements. Start from budgeted profit and add F variances and subtract A variances to reach actual profit.
Do not mix bases. If the budget is on contribution, use contribution volume variance and show fixed costs separately.

Practice questions from Reconciliation of budgeted and actual profit

Sales Price and Sales Volume Variances in other exams

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

Sales Price and Sales Volume Variances: frequently asked questions

What is the formula for sales price variance?

Sales price variance = (actual price − standard price) × actual units sold. A higher actual price gives a favourable variance. It is the same under absorption and marginal costing.

How do you calculate sales volume variance in marginal costing?

Multiply the difference between actual and budgeted units by the standard contribution per unit. Standard contribution is standard price less standard variable cost. More units than budget is favourable.

What is the difference between sales volume variance under absorption and marginal costing?

Absorption costing values the unit difference at standard profit per unit. Marginal costing values it at standard contribution per unit. The gap is the fixed overhead per unit multiplied by the unit difference.

Why is sales volume variance not valued at selling price?

Selling more units adds revenue but also adds costs. Profit changes only by the margin on each unit. So you use standard profit or contribution, not price.