the static budget is based on an estimated level of sales volume that was determined at This is a topic that many people are looking for. star-trek-voyager.net is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, star-trek-voyager.net would like to introduce to you Variance Analysis (Using Actual, Static & Flexible Budgets For Sales Volume, Revenue, Cost, Etc). Following along are instructions in the video below:
“We re going to be going over here is sales variance analysis and we ll ll look at how we calculate these different variances here based on our sales. Okay. I ve got it laid out in table form here and we ll just start by looking at what would be included here for our sales variances. So the first thing.
We re going to have to determine is our revenues based on our revenues. We re going to have some sales price and volume variances and then the next thing we have to do is determine our total variable cost that would be our direct materials direct labor variable overhead. So there are going to come up with our total variable cost and then we can determine our unit cost variances here in our sales volume variances based on those total variable costs here then the next thing we have to do is we have to determine our contribution margin. And that s really the difference between our revenues here and our total variable cost then we can determine our price and cost variances here in sales volume variances based on the contribution margin and then finally we re going to move down to our fixed overhead amounts here and this is once we know our fixed overhead amount here and our contribution margin.
Then we can determine our operating income here and based on our operating income. We re going to have our sales volume variance here okay so let s go back up here and let s look at how we do our calculations so when you re dealing with variances here and in this case. We re going to be looking at our sales variance this year. You really have three different amounts that you have to deal with here you re going to have to have a static or a standard amount here that you develop at the beginning in a period.
And then at the end of the period. You re going to have your actual results coming in and those you have to set a determine your actual results here and then once you have your actual results. And you know you re at the end of the period. Here and you know your static amount or your standard budgeted amount here at the beginning of a period.
Then you can develop the flexible budget as they would call it so once you know once you develop this flexible budget. Then you can make your comparison between your actual your flexible and your static amounts or budgets. Okay. So let s with the static budget and see what would be included here.
So. This is the case here where to set up your static amount or your standard amount you take your budgeted quantity here. Tying some budgeted price here. So that s gonna be your static budget here.
You do that at the beginning hour period. And then for your actual results here endre period. This is where you take your actual quantity times. Some actual price so those are your actual results.
Okay so now we can determine our flexible budget. At amount and that s simply taking the actual quantity here that you have from your actual results here and you take that times. The budgeted price you re getting your budgeted price off the static budget actual results are coming off the your actual results for the period. So actual quantity times.
Some budgeted price is gonna be your flexible budgeted amount okay so i ve got everything laid out here in color coded here. So it s a little easier to follow and just to make a point here anything that starts at on a stands for the actual quantities or amounts. Here in b. Is for the budgeted miles a here is in green b.
Here s in blue hair color coded. So the first thing you have to set up here you have to know your units salt and this is the case here with the actual amount that would be the actual quantity here shown in green and then with the flexible budget that s taking your actual quantity here again. We re working off our that would be our actual quantity here for a flexible budget and then for the static budget. It s gonna be the budgeted quantity.
Here or shown in blue here b q. So for our revenues. That s just simply taking your units sold times. Some price here so for our actual amount would would be the actual quantity times.
The actual price and then for our flexible budget again. We re using our actual quantity here times..
Some budgeted prices budget. The price is going to come off the static budget actual quantity times. Some budgeted price on a per unit basis. Everything is shown on a per unit basis.
Okay. So that s for our flexible amount here and then for a static amount. It s simply taking the budgeted quantity times. Some budgeted price and all the budget or the mouse here are shown in red.
Okay. So now knowing our revenues here. We can determine our sales price variances. So this would be the price variance and that s really looking at our actual vs are flexible amounts so what we do here i m color coded it so we could factor out our actual quantity here shown in gray green here and then really we re looking at the difference between our actual price here and our budgeted price.
That s the variances are always the difference so you take your actual price here. Less your budgeted price are you looking at the difference between the actual price and your budget or price times. The actual quantity. So we just factored out our actual quantity here so that would be our sales price.
Variance and you can see price variance again. It s just looking at the difference between actual and budgeted prices and then you take it times the total actual quantity here that s the actual versus our flexible budget now for our sales volume variance here based on our revenues portion that s simply comparing our flexible and our static amounts here so for our flexible amount. What do we do we re just going to factor out the budgeted price here because both of them share that in common so what we would do here factoring that out or it would be the difference here be a difference between our actual quantity and our budgeted quantity just factor that out here times. The budgeted price so that s a sales volume variance you can see it it s based on quantities here for your volume variance price.
Variance was different between the actual price are the actual and the budgeted prices. So you can make that relationship here so the next thing we have to do is turn determine our total variable cost and we ll do this in a separate video here. But just understand what s going on here that includes your direct materials your direct labor and your variable overhead. So for the actual amounts you re just going to have your actual quantities times.
Each of those amounts are actual quantities for each of those amounts of direct material. Direct labor and variable over it times. Some budgeted amount on a on a per unit basis again for your direct material. Via.
You d have a like a dm here for your direct material. That s on a per unit basis. That you have the actual results and then you have that for each or direct labor and your variable overhead and for the flexible budget did you understand what again. What would go out you d be taking the actual quantities that you had for the period time sons.
Budgeted per unit price. Here and so the budgeted amount is coming off the static budget on a per unit basis. And an actual quantity is coming off our actual results and then for our static amount that s just taking some budgeted quantity times. Some budgeted unit price for each of those so nonetheless we got to get down to our total variances total variable cost that s really direct materials three here direct labor number four here and number five here variable overhead.
So you would do that total those up for your actual actual your flexible and your static. Amounts here. So you re going to have to come up with some total variable cost here. But i m just if we look at it in terms of a per unit basis.
Here so let s just look at it. I m proven so for our actual results here it would just be the actual quantity times. Some actual variable costs on a per unit basis. And then for a flexible amount again we re using our actual quantity here times some budgeted variable costs on a per unit basis that would be from these actual results our actual quantities come from our actual results for the period.
Budgeted amounts come off our static or budgeted amounts. And i m just showing it on a per unit basis..
Here so the next thing you d have to do is for your static budget. You just need a budgeted quantity times. Some budgeted variable cost okay so now for our unit cost variance here that would be just taking our actual variable cost here difference between your actual variable cost here and the budgeted variable cost actual variable cost from the actual amounts for the period budget variable cost coming off your static budget. So what what we re doing is just factoring out this actual quantity here from our total variable cost here so you look at the actual quantity here and that s looking at the actual versus your flexible budget.
So you ve factored out that 8q here and you know it s just the difference between the actual variable cost in your budget variable cost here. So that s your unit cost variance. Here and for your sales volume variants. This is where you re looking at your flexible versus your static budget again we re just going to factor it out here so here s the case.
Where you the common fact on the mount here between your flexible and static amount is the budgeted variable costs on a per unit basis and then the difference would be between your actual quantity here and your budgeted quantity so actual difference between the actual quantity and your budgeted quantity times. Some budgeted variable cost here on a per unit basis. So that s the sales volume variance. So you see what s going on here just looking at these variances here.
Alone here comma. What was the common factor amount here between your actual inflexible bunch. It was the actual quantity here we factored those out and just took the difference between our actual variable cost. Here and a budget variable cost again times our actual quantity and same for the sales volume variance.
All we did is factor out the common mount here that was that variable cost that was the same between our flexible and our standard or a static budget factored that amount our we took it to the different we factored that out and we just taken the actual quantity less the budgeted quantity here times. Some budgeted variable cost so now we get down to our contribution margin here and that was our sales volume variance here that we were looking at between our flexible and our static amounts actual quantity difference between national quantity and budgeted quantity times our budgeted variable cost so now we get down to our contribution margin. Answer really the difference here between going up here our revenues here and revenues number 2 here and our total variable cost here number. 6.
And we would do that for our actual flexible and static amount so our contribution margin. That s simply taking our actual quantity times. Some actual contribution margin on a per unit basis. Just say we ve determined that on a per unit basis.
Now that would be for our actual results no contribution margin for a flexible amount here of the actual quantity times sums budgeted contribution margin on a per unit basis well and not to confuse things here. But when i talked about the contribution margin here between our revenues here and our total variable cost. We re just lumping everything together here and saying we know it on a per unit basis. Only to make our calculations a little easier here so we ve okay so we ve got our actual amount actual quantity times.
Some actual contribution margin on a per unit basis and then for the flexible budget actual quantity times. Some budgeted contribution margin and the bunch of the contribution margins coming off a static budget and of course. The actual quantity here is coming off the actual results for the period. And then for our static amount again.
It s just going to be a budgeted quantity times. Some budgeted contribution margin on a per unit basis here so we get down to our price cost variance. Here that s the ompletely difference agree to learn our actual and flexible amounts and we re again. We re just going to factor out that actual quantity here so we factor that out here between our so take the factor b our actual quantity and our between our actual and flexible budgets in that would then the difference would this be the actual contribution margin on a per unit basis and compared to the budgeted contribution margin on a per unit basis okay so that difference times the actual quantity common factor here between actual and flexible amount is that actual quantity and then the and this is our price cost variances here so again.
We re talking about price cost variances that is really looking at that price that the actual contribution margin versus the budgeted contribution margin okay times our actual quantity so now for our sales volume variance here based on the contribution margin. That s simply looking at the difference between the flexible and static amounts. So flexible amount and the difference here the common factor is the budgeted contribution margin on a per unit basis between flexible and static so then the difference is really the actual quantity versus our budgeted quantity so the actual quantity minus our budgeted quantity times some budgeted contribution margin on a per unit basis okay so that s our sales volume variance here so you can see the volume variance is really dealing with quantities here price and cost variances are dealing with those price or cost for the in this case the contribution margin. Okay so we got down to our sales volume variance and our price cost variance here for our contribution margin.
So now is the next thing the deal with our operating income here so this we deal with our fixed overhead and in this case. It s just gonna be for the actual amount. There s going to be some actual fixed overhead. Here and then for our flexible and static amounts.
It s just going to be some budgeted fixed overhead. Both the flexible and the country and the static amount use the budgeted fixed overhead..
And then our operating income is simply the difference between our contribution margin and our fixed overhead amount here and we do that for actual and flexible in budgeted amounts. So now we can get down to our operating income here or okay. Their operating income again. We went over that it was just the difference between our contribution margin and our fixed overhead okay so finally we get down to our sales volume variance here based on our operating income and we have to go back and look at everything here.
How we got to it. But it s just really taking the difference here between your budgeted price versus your budgeted variable cost so you can understand the budgeted price less your budgeted variable cost that difference here times. The difference between your actual quantity and your budgetary quantity. So that you have to determine in both cases here you d have in and that s based on your flexible versus your static.
And i ll see your actual amounts for the period so that s our sales volume variance variance based on operating income so budgeted price difference between budgeted price and budgeted variable cost that difference times the actual quantity versus your budgeted quantity okay so we went through all our formulas here just go back maybe. The idea is here you can see the actual budget here is just i got everything your ma are showing here in green. So the actual amount here is actual quantity times. Some actual per unit cost or price on a per base per unit basis and then the flux of here that s again taking your actual quantities here from your actual result times.
Some budgeted quantities here on a per unit basis budget of price budget. It costs. What have you on a per unit basis. That s for your flexible amount and then the static amount that s just taking setting up some budgeted quantities for the period times.
Some budgeted unit price for each of those okay so that s really what you re talking about here. And just to go back here and make up the sales price or cost variance is really the difference between your actual and flexible budget amounts here based on some price or costs amount times the actual quantity so you can see here with the flexible budget and the actual budget here. The common factor is the actual quantity here and then it would be the difference between price as price or costs. Here.
And then for these veil sales volume or quantity variances it s really looking at your flexible versus your static amounts and the flexible amount and that s in based on when your sales volume or your based based on some quantity here so you re taking the flexible amounts actual quantity they use here because it s based on the actual result versus the static amount here. The budgeted quantity here so that difference between an actual quantity and budgeted quantity. Here times. Some budget budgeted price or budgeted unit cost those are your volume variances okay.
So that s pretty much how you go through and use this chart here and to be it s good to go through something like this and use it for a reference. When you re dealing with these different problems okay one last thing here just to go through our reference key. Here. So i ve got everything color coded here the actual q stands for actual units sold or actual quantity here of some units and b q.
Here stands for the budget units sold or some budgeted unit. Quantity here and then ap is the accurate actual average sales or something actual sales price in this case. And it should have been sales price. Here.
And budgeted a b p. Stands for some budgeted sales price b p. Is shown in red. The ap.
Here is sort of a dark blue and b. Qs and blue and a q. Here is in and then the other things here bv always a vo here s actual unit variable cost b. Vo with some budgeted unit variable cost avc here s actual total unit variable cost pvc here s a budgeted total unit variable cost eave ef o here is actual fixed overhead bfo would be the budgeted fixed overhead ac m.
Here is actual contribution margin and bc m here would be some budgeted contribution margin. This is just a reference k. Here. If you want to go back over that chart and look at what we re working at here.
Okay. So that will summarize here..
Our sales variance analysis alright just to summarize. What we ve gone through here. So with our sales variance analysis. Just looking it up through the contribution margin.
And variance here so this is really we re looking at our actual results versus our budgeted performance here so under our total contribution margin. It could be split up between our price cost or flexible. Budget. Variances and our sales volume.
Planning. Variances. Okay. So looking at our price cost flexible budget variance that would simply be the actual contribution margin on a per unit basis or the difference between actual contribution margin on a per unit basis and the budget.
The contribution margin on a per unit basis that difference times the actual quantity and then under our price cost variance. It can be split up between our sales price variance and our unit cost variance so for our sales price variance. That s simply the difference between the actual price and our budgeted price and that difference times. The actual quantity and then for our unit cost variance.
It s simply taking the actual variable cost on a per unit basis and that in the difference between that and the budgeted variable costs on a per unit basis times the actual quantity now just remember our unit cost various variants that includes those a variable cost. Here that would be the direct materials. Direct labor and all our overheads here okay. So that takes care of our price cost or flexible budget variance.
Now moving over to our sales volume or are planning variants that s simply taking the difference between the actual quantity in the budgeted quantity time son some budgeted contribution margin on a per unit basis. Remember we re looking at just a total contribution margin variance here so that for our sales volume. Vary. Our volume are planning variance underneath that you re going to have the revenue part or a revenue effect in the cost part or the effect due to our costs.
So for our revenue. Part that s simply taking our actual kuan difference between our actual quantity and our budgeted quantity times. Some budgeted price and then for the cost part that s simply taking the actual difference between the actual quantity in the budgeted quantity times. Some budgeted variable cost here in a per unit basis.
So now we from that we can determine our sales volume variance. So you can factor out what would be the common fact or actual quantity less our budgeted quantity between our revenue and cost you can factor that out here. So that you would take so you would have that difference between actual quantity in your budget and quantity times. You could fact and then you d be taking the factoring out your budgeted price and your budgeted variable costs of difference between your budgeted price and your budgeted variable cost that difference times.
The difference between your actual quantity and your budgeted quantity gives you your sales volume variance. So you could look at it we looked at here just looking at our two variances here between our price. And cost and our flexible budget variance. Those amounts here and our sales volume.
Or planning variance. Those would be a two variance analysis. And then if you move down to your for variance analysis. Under your price cost you do have your sales price variance in your unit.
Cost variance and then under your sales volume variance or planning variants. You d have the revenue part and your cost part okay. So this is just the diagram breaking down the sales variances and how they interrelate with ” ..
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