Question

13. Describe the difference between "price versus volume" variance analysis- when looking at budget shortfalls.

Answer 1

Total value of Budget vs actual variance is sum of variance caused due to price and volume. Suppose budgeted sales were 100 units at the rate of 10 per unit =100*10 =1,000$. If actual sales were 90 units at 9 per unit =810 $. So total sales variance is 810 - 1000 = 190 lower or unfavorable. This unfavorable variable is split into 2 parts - volume variance and price variance.

Volume variance = (actual sales - budgeted sales) * budgeted sales price = (90-100)*10= -100

Price variance = (actual price -budget price)* actual units sold = (9-10)*90 = -90