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Sales variance analysis is an important tool to manage and monitor the performance of the sales function of your business. It also used tool to analyse business results to better understand market conditions.
Sales variance analysis involve comparing the actual sales of a period to that of another or the actual sales to budgeted (planned) sales.
There are two reasons actual sales can vary from previous period sales: either the sales were at a different price from what was in the previous period (sales price variance), or the volume sold varied from previous period (sales volume variance). Both scenarios could also simultaneously contribute to the variance.
Sales price variance:
The sales price variance reveals the difference in total revenue caused by charging a different selling price from one period to another.
Price variance = (Price charged now – Price charged previously) x Qty sold this period
Sales volume variance:
The sales price variance reveals the difference in total revenue caused by changes in the quantities sold in different periods.
Volume variance = ( Qty sold in this period – Oty sold in previous period) x Price charged now
Using the variance analysis report, businesses can evaluate the financial risk to the company should those trends continue. Another is to address the reasons behind the significant variances identified in the variance analysis report.
A follow up to both of those steps may be to create new targets for performance improvement.