The sales volume variance is computed by taking the difference between the actual sales volume used in the flexible budget and the budgeted sales volume and multiplying that difference by the budgeted contribution margin per unit.
The variance indicates the impact on the firm’s profit of changes in the unit sales volume. This is the amount by which sales would have varied from the budget of nothing but sales volume had changed.
Five reasons can contribute to sales volume variance:
*Unexpected competition
*Ineffective sales promotion
*Ineffective advertising’
*Customers meeting adverse business conditions, thus, unable to take their usual order
*Lack of proper supervision and control of salesman.
In the case of the multiproduct companies, the ‘sales-volume variance’ should be computed separately for each type of products sold, so that the management may get a clear and complete picture and take a suitable decision in the matter.
What is sales volume variance?
