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Strategic Cost Management · Variance Analyses

Sales Variances: Turnover Method and Profit Method

Updated 11 October 2026 · Fact-checked

Sales variances explain why actual sales or profit differ from budget. Under the turnover method you measure the gap in sales value. Under the profit method you measure it in margin. Split the gap into price and volume, then split volume into mix and quantity. Use budgeted prices or margins for volume, mix and quantity.

Understand Sales Variances

A sales variance compares what you actually sold with what the budget said you would sell. It tells management whether the gap came from selling at a different price or from selling a different amount.

There are two ways to measure it. The turnover (value) method looks at sales revenue. The profit (margin) method looks at profit, so each unit is weighted by its budgeted profit per unit. The profit method is more useful when products earn very different margins, because selling more of a low-margin product can raise turnover and still hurt profit.

The first split is price and volume. Price variance asks: did we get more or less per unit than budgeted? Volume variance asks: did we sell more or fewer units than budgeted, valued at budgeted price (or budgeted margin)?

When you sell more than one product, volume splits again. Mix variance shows the effect of selling products in a different proportion from the budget. Quantity (sub-volume) variance shows the effect of the total units sold being higher or lower than budget, with the budgeted mix held constant.

In the profit method, assume standard cost equals budgeted cost unless the question says otherwise. Then cost differences do not enter, and sales margin variances are purely sales effects. A variance is favourable if it increases sales or profit over budget.

Key rules to remember

Sales value variance (turnover)
(AQ × AP) − (BQ × BP)
AQ = actual quantity, AP = actual price, BQ = budgeted quantity, BP = budgeted price. Favourable if actual sales exceed budget.
Sales price variance
AQ × (AP − BP)
Same figure under both methods. Favourable if actual price is higher.
Sales volume variance (turnover)
BP × (AQ − BQ)
Always at budgeted price. Equals mix variance + quantity variance.
Revised actual quantity (RAQ)
Total actual units × (BQ of the product ÷ Total BQ)
Actual total units spread in the budgeted proportion. Needed for mix and quantity variances.
Sales mix variance (turnover)
BP × (AQ − RAQ)
Sum over all products. Compares actual mix with budgeted mix for the same total units.
Sales quantity variance (turnover)
BP × (RAQ − BQ)
Sum over all products. Shortcut: (Total AQ − Total BQ) × average budgeted price per unit.
Total sales margin variance (profit)
Actual profit − Budgeted profit
Actual profit here is sales less standard cost of the actual units sold.
Sales margin volume variance
Budgeted margin per unit × (AQ − BQ)
Budgeted margin per unit = BP − standard cost per unit. Equals margin mix + margin quantity variance.
Sales margin mix variance
Budgeted margin per unit × (AQ − RAQ)
Sum over all products.
Sales margin quantity variance
Budgeted margin per unit × (RAQ − BQ)
Sum over all products. Shortcut: (Total AQ − Total BQ) × average budgeted margin per unit.
Reconciliation checks
Value variance = Price + Volume; Volume = Mix + Quantity
The same holds for margin variances. Use these to verify your answer.

How to solve Sales Variances questions

Follow the same sequence for every question. It keeps the working tidy and lets you check the totals.

  1. 1Read whether the question asks for the turnover method, the profit method, or both. Note any standard cost per unit.
  2. 2List for each product: BQ, BP, AQ, AP. For the profit method, also compute budgeted margin per unit (BP − standard cost).
  3. 3Compute the total variance first: actual sales less budgeted sales, or actual profit less budgeted profit.
  4. 4Compute the price variance as AQ × (AP − BP) for each product, and total it.
  5. 5Compute the volume variance using BP (turnover) or budgeted margin per unit (profit) × (AQ − BQ). Check that price + volume equals the total.
  6. 6Find RAQ for each product from total actual units in the budgeted ratio. Then compute mix and quantity variances.
  7. 7Check that mix + quantity equals volume. Mark each figure F or A.
  8. 8Add one or two lines of interpretation, for example that a favourable mix came from selling more of the higher-margin product.

Quickest way: Table plus total-based shortcuts

When to use it: Use when the question has two or three products and you are short of time. It also works as a check on a full calculation.

  1. Build one table with columns BQ, AQ, RAQ, BP (or budgeted margin).
  2. Get the quantity variance in one line: (Total AQ − Total BQ) × average budgeted price (or margin) per unit. Average = budgeted total sales (or profit) ÷ total BQ.
  3. Compute the volume variance product by product, then get mix as volume − quantity.
  4. Compute price variance directly from AQ × (AP − BP).
  5. Add price and volume. It must equal the total variance. If it does not, recheck the arithmetic before writing the answer.

Common mistakes in Sales Variances

  • Using actual price to value volume, mix or quantity variances

    Students mix up price variance with the others and use AP everywhere.

    Fix: Only the price variance uses AP. Volume, mix and quantity use budgeted price (turnover) or budgeted margin per unit (profit).

  • Using selling price instead of margin in the profit method

    The turnover formulas are learnt first and carried over unchanged.

    Fix: In the profit method, replace BP with budgeted profit per unit (BP − standard cost). Calculate it in a separate column first.

  • Computing RAQ with the wrong ratio

    Students use actual proportions instead of budgeted proportions, or divide by the wrong total.

    Fix: RAQ = total actual units × product's BQ ÷ total BQ. The RAQ column must add up to total actual units.

  • Wrong sign or missing F/A labels

    Students rush and subtract in the wrong order.

    Fix: Always take actual minus budget. Positive means favourable for sales and profit. Write F or A beside every figure.

  • Calling a variance favourable just because turnover rose

    Under the turnover method a shift to a low-margin product can still show a favourable mix.

    Fix: If the question asks for a comment, relate it to margin. Say that the turnover method ignores profitability and the profit method corrects this.

  • Not checking that components add up

    Students stop after computing each variance separately.

    Fix: Always confirm price + volume = total and mix + quantity = volume. A mismatch means an arithmetic or RAQ error.

Worked examples

Example 1

Turnover method. Budget: Product A 600 units at ₹50; Product B 400 units at ₹100. Actual: Product A 500 units at ₹55; Product B 600 units at ₹95. Calculate the sales value, price, volume, mix and quantity variances.

Show the solution
  1. Budgeted sales = (600 × 50) + (400 × 100) = ₹30,000 + ₹40,000 = ₹70,000.
  2. Actual sales = (500 × 55) + (600 × 95) = ₹27,500 + ₹57,000 = ₹84,500.
  3. Sales value variance = 84,500 − 70,000 = ₹14,500 F.
  4. Price variance: A = 500 × (55 − 50) = ₹2,500 F; B = 600 × (95 − 100) = ₹3,000 A. Total = ₹500 A.
  5. Volume variance: A = 50 × (500 − 600) = ₹5,000 A; B = 100 × (600 − 400) = ₹20,000 F. Total = ₹15,000 F.
  6. Check: 15,000 F − 500 A = ₹14,500 F. Agrees.
  7. Total actual units = 1,100. Budgeted ratio 60:40, so RAQ: A = 660, B = 440.
  8. Quantity variance: A = 50 × (660 − 600) = ₹3,000 F; B = 100 × (440 − 400) = ₹4,000 F. Total = ₹7,000 F.
  9. Mix variance: A = 50 × (500 − 660) = ₹8,000 A; B = 100 × (600 − 440) = ₹16,000 F. Total = ₹8,000 F.
  10. Check: 8,000 F + 7,000 F = ₹15,000 F, equal to the volume variance.

Answer: Sales value ₹14,500 F; price ₹500 A; volume ₹15,000 F; mix ₹8,000 F; quantity ₹7,000 F. The favourable volume came from selling more of Product B, which has the higher price.

Example 2

Profit method. Budget: Product A 600 units at ₹50, standard cost ₹40; Product B 400 units at ₹100, standard cost ₹70. Actual: A 500 units at ₹55; B 600 units at ₹95. Calculate the total sales margin, price, volume, mix and quantity variances.

Show the solution
  1. Budgeted margin per unit: A = 50 − 40 = ₹10; B = 100 − 70 = ₹30.
  2. Budgeted profit = (600 × 10) + (400 × 30) = ₹6,000 + ₹12,000 = ₹18,000.
  3. Actual profit at standard cost: A = 500 × (55 − 40) = ₹7,500; B = 600 × (95 − 70) = ₹15,000. Total = ₹22,500.
  4. Total sales margin variance = 22,500 − 18,000 = ₹4,500 F.
  5. Price variance: A = 500 × 5 = ₹2,500 F; B = 600 × (−5) = ₹3,000 A. Total = ₹500 A.
  6. Volume variance: A = 10 × (500 − 600) = ₹1,000 A; B = 30 × (600 − 400) = ₹6,000 F. Total = ₹5,000 F.
  7. Check: 5,000 F − 500 A = ₹4,500 F. Agrees.
  8. RAQ: A = 660, B = 440 (total 1,100 in the ratio 60:40).
  9. Quantity variance: A = 10 × 60 = ₹600 F; B = 30 × 40 = ₹1,200 F. Total = ₹1,800 F.
  10. Mix variance: A = 10 × (500 − 660) = ₹1,600 A; B = 30 × (600 − 440) = ₹4,800 F. Total = ₹3,200 F.
  11. Check: 3,200 F + 1,800 F = ₹5,000 F, equal to the volume variance.

Answer: Total sales margin variance ₹4,500 F; price ₹500 A; volume ₹5,000 F; mix ₹3,200 F; quantity ₹1,800 F. Profit rose because the mix moved towards Product B, which earns ₹30 per unit against ₹10 for A.

Exam tips

  • Write the formula and the full table before the numbers. Marks in written questions often go for method even if one figure is wrong.
  • Section A MCQs often test a single formula, such as the base for volume variance or the definition of RAQ. Remember that volume, mix and quantity use budgeted values.
  • If the question gives standard cost, expect the profit method. If it gives only prices, expect the turnover method.
  • If a single product is sold, mix variance is zero and volume equals quantity. Say so instead of calculating.
  • End with a short recommendation or comment on mix and price. Decision-oriented questions reward interpretation.

Practice questions from Variance Analyses

Sales 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 Variances: frequently asked questions

What is the difference between the turnover method and the profit method of sales variances?

The turnover method measures variances in sales value and uses budgeted selling price for volume, mix and quantity. The profit method measures them in profit and uses budgeted margin per unit. The profit method is better when products have very different margins.

How do you calculate sales mix variance?

Work out RAQ, which is total actual units spread in the budgeted ratio. Then take budgeted price (turnover method) or budgeted margin per unit (profit method) × (actual quantity − RAQ) for each product and add them up.

How do you calculate sales margin volume variance?

Multiply budgeted margin per unit by the difference between actual and budgeted quantity: budgeted margin per unit × (AQ − BQ). Add across products. It equals the margin mix variance plus the margin quantity variance.

Is the sales price variance the same in both methods?

Yes. It is AQ × (AP − BP) in both. The difference between the methods arises only in the volume, mix and quantity variances.