ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis
A company's sales price variance for a period is adverse and its sales volume variance is favourable. Which of the following is the most likely explanation?
The most likely explanation is that a price discount was offered which increased the quantity sold above budget. Lower selling prices cause the adverse price variance, while the extra demand they generate causes the favourable sales volume variance.
- AA price discount was offered which boosted the quantity sold above budgetCorrect
- BA price increase was introduced which reduced demand below budget
- CRaw material costs rose, so output fell below budget
- DSales staff failed to meet the budgeted level of activity
Explanation
An adverse price variance means selling below standard price, and a favourable volume variance means selling more than budget. Discounting that stimulates demand explains both. A price rise would give a favourable price variance, and the other options do not link to an adverse price effect with higher volume.
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