Question

1. Explain the net sales volume variance and list its components.

2. What problems can result from the use of tight standards?

Answer 1

Answers:

1. Net Sales volume variance is changes in the revenue or profit of the business because of difference between budgeted and actual sales units.Sales volume variance is playing important role in forming a more meaningful analysis of other variances in the preparation of the operating statement.

The sales volume variance is the difference between the actual and expected number of units sold, multiplied by the budgeted price per unit. The formula is:

Sales volume variance = (Actual units sold - Budgeted units sold) x Budgeted price per unit

There are number of components for variance of sales volume. some components are listed below.

1. Product recall is the one of the component which cause foe decline of sale
2. Price of the product in the market is also decides the sales of an organization
3. Trading restrictions
4. Competition also a component which cause for sales volume variance
5. Cannibalization