sales price variance equations

Question 1

What is the Sales Price Variance?

Answer 1

Formula: (Actual price – Standard price) × Actual quantity
Measures how much profit changed due to charging a different price than expected.
✅ Favourable = higher price than expected
❌ Adverse = lower price than expected

Question 2

What is the Sales Volume Variance?

Answer 2

Formula: (Actual volume – Budgeted volume) × Standard profit per unit
Measures impact on profit from selling more or fewer units than planned.
✅ Favourable = sold more units
❌ Adverse = sold fewer units

Question 3

What is the Direct Material Price Variance?

Answer 3

Formula: (Standard price – Actual price) × Actual quantity used
Shows if materials were bought at a higher/lower price than expected.

✅ Favourable = cheaper material
❌ Adverse = more expensive material

Question 4

What is the Direct Material Usage Variance?

Answer 4

(Standard quantity – Actual quantity used) × Standard price
Tells you whether you used more or less material than expected.
✅ Favourable = used less
❌ Adverse = used more

Question 5

What is the Direct Labour Rate Variance?

Answer 5

Formula: (Standard rate – Actual rate) × Actual hours worked
Measures if you paid more or less per hour than expected.
✅ Favourable = lower wage paid
❌ Adverse = higher wage paid

Question 6

What is the Direct Labour Efficiency Variance?

Answer 6

(Standard hours – Actual hours) × Standard rate
Shows if labour was more or less efficient than expected.
✅ Favourable = less time taken
❌ Adverse = more time taken

Question 7

What is the Fixed Production Overhead Expenditure Variance?

Answer 7

Budgeted overhead – Actual overhead
Shows whether fixed overheads were over- or under-spent.
✅ Favourable = spent less than budget
❌ Adverse = spent more

Question 8

What is the Fixed Production Overhead Volume Variance?

Answer 8

(Actual production – Budgeted production) × Fixed overhead absorption rate per unit
Measures whether fixed costs were spread over more or fewer units than expected.
✅ Favourable = produced more units
❌ Adverse = produced fewer units

Question 9

What is the Administration Overhead Expenditure Variance?

Answer 9

Formula: Budgeted admin cost – Actual admin cost
Shows if the company spent more or less on admin than planned.
✅ Favourable = under budget
❌ Adverse = over budget

Question 10

Are all variances calculated using ‘Standard – Actual’?

Answer 10

❌ Not all.

✅ Cost variances (materials, labour, overheads) =
Standard – Actual → Less cost = good (favourable)

✅ Revenue variances (e.g. sales price) =
Actual – Standard → More revenue = good (favourable)

Question 11

what is arp suev?

Answer 11

actual - rate n price standard- usuage , effeciency n volume