Page 227 - Microsoft Word - 00 Prelims.docx

Advanced variances

Causes of sales variances

Variance Favourable Adverse

Sales price Unexpected price increase due Unexpected price decrease
to: due to:
 Higher than anticipated  Lower than anticipated
customer demand customer demand

 Lower than anticipated  higher than anticipated
demand for competitor’s demand for competitor’s
products products

 An improvement in quality  A reduction in quality or
or performance performance
Sales volume Unexpected increase in demand Unexpected fall in demand
due to: due to:

 A lower price  A higher price

 Improved quality or  Lower quality or
performance performance of the
product
 A fall in quality or
performance of  An increase in quality or
competitor’s products performance of
competitor’s products
 A successful marketing
campaign  An unsuccessful
marketing campaign

The sales price and volume variances may be linked. For example, an
increase in the price of a product will result in a favourable sales price
variance but may also result in an adverse sales volume variance, due
to a fall in demand.

221