Budgeting and Control

• A budget is an accounting plan.

• It is a formal plan of action expressed in

monetary terms

• It is a quantified plan for future activities –

quantitative blue print for action.
 Meaning and Definition:

• [Link] states, “A budget is a written plan covering projected activities of a

firm for a definite time period.”

• 1. It is mainly a forecasting and controlling device.

• 2. It is prepared in advance before the actual operation of the company or project.
• 3. It is in connection with definite future period.
• 4. Before implementation, it is to be approved by the management.
• 5. It also shows capital to be employed during the period.
 Budgetary Control:
• Budgetary Control is a method of managing costs through preparation of
budgets. Budgeting is thus only a part of the budgetary control.

• The main features of budgetary control are:

• 1. Establishment of budgets for each purpose of the business.

• 2. Revision of budget in view of changes in conditions.
• 3. Comparison of actual performances with the budget on a continuous
basis.
• 4. Taking suitable remedial action, wherever necessary.
• 5. Analysis of variations of actual performance from that of the budgeted
performance to know the reasons thereof.
 Objectives of Budgetary Control:

• Planning:
• Co‐ordination:
• Measurement of Success:
• Motivation:
• Communication:
• Control:
 Advantages of Budgetary control:
• 1. This system provides basic policies for initiatives.

• 2. It enables the management to perform business in the most professional manner.

• 3. It ensures team work and thus encourages the spirit of support and mutual understanding among
the staff.

• 4. It increases production efficiency, eliminates waste and controls the costs.

• 5. It shows to the management where action is needed to remedy a position.

• 6. Budgeting also aids in obtaining bank credit.

• 7. It reviews the present situation and pinpoints the changes which are necessary.

• 8. With its help, tasks such as like planning, coordination and control happen effectively and efficiently.

• 9. It involves an advance planning which is looked upon with support by many credit agencies as a
marker of sound management
 Limitations of Budgetary control:
• 1. It tends to bring about rigidity in operation, which is harmful

• 2. It being expensive is beyond the capacity of small undertakings.

• 3. Budgeting cannot take the position of management but it is only an

instrument of management. ‘

• 4. It sometimes leads to produce conflicts among the managers as each of

them tries to take credit to achieve the budget targets.

• 5. If it is not implemented properly, it may lower morale.

• 6. The installation and function of a budgetary control system is a costly

affair .
 Essentials of Effective Budgeting:
• Support of top management:
• Team Work:
• Realistic Objectives:
• Excellent Reporting System:
• Structure of Budget team:
• Well defined Business Policies:
• Integration with Standard Costing System:
• Inspirational Approach:
Classification of Budget:
 SALES BUDGET:
• The factor to be consider in forecasting sales are as follows:

• 1. Study of past sales to determine trends in the market.

• 2. Estimates made by salesman various markets of company

products.

• 3. Changes of business policy and method.

• 4. Government policy, controls, rules and Guidelines etc.

• 5. Potential market and availability of material and supply.

 PRODUCTION BUDGET

• Usually, the production budget is based on the

sales budget.

• At the time of preparing the budget, the

production manager will consider the physical
facilities like plant, power, factory space, materials
and labour, available for the period.
 PRODUCTION COST BUDGET:
• This budget shows the estimated cost of production.

• The cost of production is shown in detail in respect of

material cost, labour cost and factory overhead.

• Thus production cost budget is based upon Production

Budget, Material Cost Budget, Labour Cost Budget and
Factory overhead.
 RAW‐MATERIAL BUDGET
• This budget shows the estimated quantity of all
the raw materials and components needed for
production demanded by the production budget.

• Raw material budget generally deals with only

the direct materials whereas indirect materials
and supplies are included in the overhead cost
budget.
 PURCHASE BUDGET:

• The main purposes of this budget are:

• 1. It designates cash requirement in respect of
purchase to be made during budget period; and

• 2. It is facilitates the purchasing department to

plan its operations in time in respect of purchases
so that long term forward contract may be
organized
 LABOUR BUDGET:
• This budget may be classified into labour requirement budget
and labour recruitment budget.

• The labour necessities in the various job categories such as

unskilled, semi‐skilled and supervisory are determined with
the help of all the head of the departments.

• The labour employment is made keeping in view the

requirement of the job and its qualifications, the degree of
skill and experience required and the rate of pay
 PRODUCTION OVERHEAD BUDGET:
• The production overhead budget represents the estimate of all the
production overhead i.e. fixed, variable, semi‐variable to be incurred during
the budget period.

• 1) Fixed overheads i.e., that which is to remain stable irrespective of vary in

the volume of output,

• 2) Apportion of manufacturing overheads to products manufactured, semi

variable cost i.e., those which are partly variable and partly fixed.

• 3) Control of production overheads.

• 4) Variable overheads i.e., that which is likely to vary with the output.
SELLING AND DISTRIBUTION COST BUDGET:
• The Selling and Distribution Cost budget is
estimating of the cost of selling, advertising,
delivery of goods to customers etc. throughout
the budget period.

• This budget is closely associated to sales budget

in the logic that sales forecasts significantly
influence the forecasts of these expenses.
 ADMINISTRATION COST BUDGET:
• This budget includes the administrative costs for
non‐manufacturing business activities like director’s fees,
managing directors’ salaries, etc.

• Most of these expenses are fixed so they should not be too

difficult to forecast.

• There are semi‐variable expenses which get affected by the

expected rise or fall in cost which should be taken into
account.
•
• Generally, this budget is prepared in the form of fixed
budget.
 CAPITAL‐ EXPENDITURE BUDGET
• This budget stands for the expenditure on all fixed
assets for the duration of the budget period.

• [Link] on the production facilities of certain

departments as revealed by the plant utilization
budget.

• [Link]‐term business policy with regard to technical

developments.

• 3. Potential demand for certain products.

 CASH BUDGET:
• The cash budget is a sketch of the business estimated
cash inflows and outflows over a specific period of
time.

• Cash budget is one of the most important and one of

the last to be prepared.

• It is a detailed projection of cash receipts from all

sources and cash payments for all purposes and the
resultants cash balance during the budget.
 Function of Cash Budget:
• 1. It designates cash excesses and shortages.

• 2. It shows whether capital expenditure could be

financed internally.

• 3. It provides funds for standard growth.

• 4. It provides a sound basis to manage cash

position.
 Advantages of Cash Budget
• 1. Usage of Cash:
• 2. Allocation for Capital Investment:
• 3. Provision of Excess Funds:
• 4. Pay‐out Policy
• 5. Provision for acquiring Funds:
• 6. Profitable Use of Cash:
 Limitation of Cash Budget:
• 1. Complex Assumption:
• 2. Inflexibility:.
• 3. Costly:
 FIXED BUDGET:
• A fixed budget is prepared for one level of output and one set of condition. It is known as a
static budget.

• This budget is not useful because:

• 1. The conditions go on the changing and cannot be expected to be firm.

•
• 2. The management will not be in a position to assess, the performance of different heads
on the basis of budgets prepared by them because to the budgeted level of activity.

• 3. It is hardly of any use as a mechanism of budgetary control because it does not make any
difference between fixed, semi‐variable and variable costs

• It does not provide any space for alteration in the budgeted figures as a result of change in
cost due to change in the level of activity.
 FLEXIBLE BUDGET
• This is a dynamic budget.

• In comparison with a fixed budget, a flexible

budget is one “which is designed to change in
relation to the level of activity attained.”

• An equally accurate use of the flexible budgets is

for the purposes of control.
 Flexible Budget
• Where the level of activity varies from period to period
• .
• Where the business is new and as such it is difficult to forecast the demand.

• Where the organization is suffering from the shortage of any factor of production.

• Where the nature of business is such that sales go on changing.

•
• Where the changes in fashion or trend affects the production and sales.
•
• Where the organization introduces the new products or changes the patterns and
designs of its products frequently.

• Where a large part of output is intended for the export

 Zero Base Budgeting:
• The ‘Zero‐Base’ refers to a ‘nil‐budget’ as the
starting point.

• It starts with a presumption that the budget for the

next period is ‘zero’ until the demand for a
function, process, or project is not justified for
single penny.
• ZBB is a planning, resource allocation and control tool.
• (a) There is an efficient budgeting system within the enterprise.

• (b) Managers can develop quantitative measures for use in

performance evaluation.

• (c) Among the new suggestions and programmes, along with old
ones are put to a strict scrutiny.

• (d) Funds are diverted from low‐priority suggestions to high

priority suggestions.
 Procedure of Zero‐base Budgeting:
• Determination of the objective:
• Degree at the ZBB is to be introduced:
• Growth of Decision units:
• Growth of Decision packages:
• Assessment and Grading of decision packages:
Allotment of money through Budgets:
 Advantages:
• ZBB rejects the attitude of accepting the current position in support of an attitude
of inquiring and testing each item of budget.

• It helps improve financial planning and management information system through

various techniques.

• It is an educational process and can promote a management team of talented and

skillful people who tend to promptly respond to changes in the business
environment.

• It facilities recognition of inefficient and unnecessary activities and avoid wasteful

expenditure.

• Cost behavior patterns are more closely examined.

• Management has better elasticity in reallocating funds for optimum utilization of

the funds.
 Disadvantages
• 1. It is an expensive method as ZBB incurs a huge cost every in
its preparation.
•
• 2 It also requires high volume of paper work; hence sometimes
it becomes a tedious job.
•
• 3. In ZBB there is a danger of emphasizing short‐term benefits at
the expenses of long term ones.
•
• [Link] is not a new method for evaluating various alternatives,
and cost‐benefit analysis.
•
• 5. The psychological effects can also not be ignored.
(1)Prepare a Flexible budget for overheads on the basis of the following data. Ascertain the
overhead rates at 50% and 70% capacity.

Variable overheads: At 60% capacity (Rs)

Indirect Material 6,000
Labour 18,000
Semi‐variable overheads:
Electricity: (40% fixed & 60% variable) 30,000
Repairs: (80% fixed & 20% Variable) 3,000
Fixed overheads:
Depreciation 16,500
Insurance 4,500
Salaries 15,000
Total overheads 93,000

Estimated direct labour hours 1,86,000

Items Capacity
50% 60% 70%
Variable overheads:

Indirect Material 5000 (50/60*6000) 6000 7000

Labour 15,000 (50/60*18000) 18,000 21000
Semi‐variable overheads:
Electricity: 27,000 30,000 33000
Repairs: 2,900 3000 3100
Fixed overheads:
Depreciation 16,500 16,500 16500
Insurance 4,500 4,500 4500
Salaries 15,000 15,000 15000
-------------- ----------- ------------
Total overheads 85900 93000 10100
Estimated direct labour 155000 (50/60*186000) 186000 217000
hours ------------- ----------- ------------
0.55 0.50 0.46
 Working Note:

• Electricity 30000
• 30000*60/100=18000
• 30000*40/100=12000
• 18000+12000=30000
• At 50% capacity = 18,000 * 50/60 = Rs. 15,000
• Rs. 12,000 + Rs. 15,000 = Rs. 27,000
• 70%= (40% fixed-12000)+(70/60*18000=21000)=33000
• 60% capacity = (60% flexible Rs 18,000) + (40% fixed Rs. 12,000) = Rs. 30,000

• Repairs For 60% capacity = Rs.600

• =Rs. 2400 + Rs.600 =Rs.3,000
• At 50% capacity : = 50/60 * 600 = Rs. 500 =Rs.2400 + 500 =Rs.2,900
70% capacity= (80% fixed -2400)+ (20%-70/60*600=700)=3100
• The expenses budgeted for production of 1,000 units in a
factory are furnished below:
• Particulars Per Unit Rs.
• Material Cost 700
• Labour Cost 250
• Variable overheads 200
• Selling expenses (20% fixed) 130
• Administrative expenses (Rs. 2,00,000) 200
• Total Cost 1,480
• Prepare a budget for production of 600 units and 800 units
assuming administrative expenses are rigid for all level of
production.
 Question
• A factory engaged in manufacturing plastic buckets is working at 40% capacity and produces 10,000 buckets
per month. The present cost break up for one bucket is as under:
• Materials Rs.10
• Labour Rs.3
• Overheads Rs.5 (60% fixed)
• 5*60/100=3 fixed*10000=30000
• 2 variable Cost
• The selling price is Rs.20 per bucket.
• If it is desired to work the factory at 50% capacity the selling price falls by 3%.
• 20*3/100=0.60
• 20-0.60=19.40

• At 90% capacity the selling price falls by 5% accompanied by a similar fall in the price of material.
• 20*5/100=1
• 20-1=19
• 10*5/100=0.50
• 10-0.50=9.50

• You are required to prepare a statement the profit at 50% and 90% capacities and also calculate the break‐
even points at this capacity production
• 3.5*10/100=0.35
• 3.5+0.35=3.85
Using the following information, prepare a flexible budget for the production of 80% and 100% act

Production at 50% Capacity 5,000 Units

Raw Materials $80 per unit
Direct Labor $50 per unit
Direct Expenses $15 per unit
Factory Expenses $50,000 (50) (Fixed)
Administration Expenses $60,000 (Variable)
• A factory is currently working at 50% capacity and produces 10,000
units. Estimate the profits of the company when the factory works
at 60% and 80% capacity, and offer your critical comments.
• At 50% capacity, the cost of working raw materials increases by 2%
and the selling price falls by 2%.
• At 80% capacity, the working raw materials cost increases by 5%
and selling price falls by 5%.
• Additionally, at 50% capacity, working the product costs $180 per
unit and it is sold at $200 per unit.
• The unit cost of $180 consists of the following:
• Material: $100
• Labor: $30
• Factory overhead: $30 (40% fixed)
• Admin overhead: $20 (50% fixed)
 Material Variance
A) Material Price Variance (MPV) :
Actual Quantity (Standard Price – Actual Price)
B) Material Usage Variance (MUV) :
Standard price [Standard quantity – Actual Quantity]
c) Material Cost Variance (MCV) :
Standard cost of Material – Actual cost of Material =
[Standard quantity x Standard price] – (Actual Quantity x Actual Price]
Rectification / Verification : MCV = MPV + MUV
Material Mix variance = (Revised Standard Quantity – Actual
Quantity) x S.P.
Material Yield Variance+ = (Actual yield – Standard yield) x Standard
output price
Verification : MCV = MPV + MMV + MYV
 Question-1
A company produces a product X and operates a system of
standard costing. Details of information for the month of July ,
2002 are as under :
Standard output from each ton of material : 50 units
Standard price per ton : Rs.150
Actual usage : 100 tons
Actual price per ton : Rs.200
Actual output : 6000 units Calculate material variances.
 Sol
A) Material Price Variance (MPV) :
Actual Quantity (Standard Price – Actual Price)
= 100(150-200)=5000(unfavorable)

B) Material Usage Variance (MUV) :

Standard price [Standard quantity – Actual Quantity]
Standard quantity =6000 units/50 units=120
150(120-100) = 3000(Favourable)

c) Material Cost Variance (MCV) :

Standard cost of Material – Actual cost of Material =
[Standard quantity x Standard price] – (Actual Quantity x Actual Price]

(120*150)- (100*200)= 2000 unfavourable

Rectification / Verification : MCV = MPV + MUV

(2000)=(5000)+3000
 Question-2
A company produces a product X and operates a system of
standard costing. Details of information for the month of July ,
2012 are as under :
Standard output from each ton of material : 100 units
Standard price per ton : Rs.160
Actual usage : 110 tons
Actual price per ton : Rs.190
Actual output : 8000 units Calculate material variances.
• Material Price Variance= 3300(unfavourable)
• Actual Quantity (Standard Price – Actual Price)
• 110(160-190)= 3300(unfavourable)
• Material Usage Variance= (Unfaourable)
• Standard price [Standard quantity – Actual
Quantity]
• 160(80-110)=4800(unfavorable)
• Material Cost Variance= (Unfaourable)
• (3300)+(4800)=(8100)
 Question 2
• 80Kg. of material A at a standard price of Rs.2
per kg and 40kgs. of material B at a standard
price of Rs.5 per kg. Were to be used to
manufacture 100kgs. of a chemical. During a
month, 70kgs. of material A priced at
Rs.2.10per kg. And 50kgs. of Material B priced
at Rs.4.50per kg. were actually used and the
output of the chemical was 102 kgs. Find out
the material variance.
 Solution

• Standard cost per kg. Of output = Rs.3.60

• Standard cost of 102kgs of output = 102 x Rs.3.60 = Rs.367.20

• (A) Material Price variance = (Standard Price – Actual price) x Actual Quantity
• A = (2 – 2.10) x 70 = Rs.7 (A)
• B = (5 – 4.50) x 50 = Rs.25 (F)
• -------------
• Total = Rs.18 (F)
• -------------
• Material Mix variance = (Revised Standard Quantity – Actual Quantity) x S.P.
• A = (80 – 70) x 2 = Rs.20 (F)
• B = (40 – 50) x 5 = Rs.50 (A)
• -------------
• Total = Rs.30 (A)
• -------------
• Material Yield Variance = (Actual yield – Standard yield) x Standard output price
• = (102 – 100) x Rs.3.60 = Rs.7.20 (F)

• Material cost Variance = Standard cost of Actual out put– Actual cost

(102*3.6-100*3.72)
• = 367.20-372 = Rs.4.80 (A)

• Verification : MCV = MPV + MMV + MYV = Rs.18 (F) + Rs.30 (A) + 7.20 (F) Rs.4.80 (A) = Rs.4.80 (A)
 Q:2

• : The standard cost of a certain chemical mixture

is: 35% material A at Rs.25 per kg. 65% material B
at Rs.36 per kg. A standard loss of 5% is expected
in production. During a period the following
materials are used: 125kgs of material A at Rs.27
per kg; and 275kgs of material B at Rs.34 per kg.
The actual output was 365kg. Calculate : 1.
Material cost variance 2. Material price variance
3. Material mix variance 4. Material yield variance
 Sol

• Standard output = 400 – 5% = 380kg.

• Actual Output = 365kg.

• Total units=400
• Loss of 5%
• 400*5/100=20 units
• 400-20=380
• Standard cost per kg. Of output = Rs.12,860 ÷ 380kg. = Rs.33.84
• Computation of variances :
• 1. Material cost variance = Standard cost of actual output – Actual cost
• Standard cost per actual output= 365*33.84=12351.6
• = (365 x 33.84) – 12,725 = Rs.373 (A)
• 2. Material price variance = (SP – AP) x AQ
• A = (25 – 27) x 125 = Rs.250 (A)
• B = (36 – 34) x 275 = Rs.550 (F)
• --------------
• = 300 (F)
• --------------
• 3. Material mix variance = (RSQ – AQ) X SP
• A = (140 – 125) x 25 = 375 (F)
 Sol:
• Material mix variance = (RSQ – AQ) X SP
• A = (140 – 125) x 25 = 375 (F)
• B = (260 – 275) x 36 = 540 (A)
• ----------
• = 165 (A)
• -----------

• 4. Material yield variance = (AY – SY) x Standard cost per kg

of output = (365 – 380) x 33.84 = Rs.508 (A)

• Verification : MCV = MPV + MMV + MYV

• 373 (A) = 300 (F) + 165 (A) + 508 (A)
 Question
• With the help of the following data, calculate :
(i) Labour Cost Variance, (ii) Labour Rate
Variance, (iii) Labour Efficiency Variance
Standard hours : 40 @ Rs.3 per hour Actual
hour : 50 @ Rs.4 per hour
 Sol
• Labour Cost Variance [LCV] :
[Standard Time x Standard Rate] – [Actual Time x
Actual Rate]
= [40 x 3] – [50 x 4] = 120 – 200 = Rs.80 (Adverse)
(ii) Labour Rate Variance [LRV] : Actual Time
[Standard Rate – Actual Rate] = 50 [3 – 4] = Rs.50
(Adverse)
(iii) Labour Efficiency Variance [LEV] : Standard Rate
[Standard Time – Actual Time] = Rs.3 [40 – 50] =
Rs.30 (Adverse)
 Question
• With the help of the following data, calculate :
(i) Labour Cost Variance, (ii) Labour Rate
Variance, (iii) Labour Efficiency Variance
Standard hours : 80 @ Rs.5 per hour Actual
hour : 70 @ Rs.4 per hour
• Calculate Labour variances from the following
data: Gross Direct wages Rs.30,000 Standard
hours 1,600 Standard rate per hour Rs.15
Actual hours paid 1,500 Actual hours paid20
include hours not worked (abnormal idle time)
: 50

•
• Solution : (i) Labour Cost Variance [LCV] :
• [Standard Time x Standard Rate] – [Actual Time x Actual Rate] = [1,600 x
15] – [1,500 x 20] = 24,000 – 30,000 = Rs.6,000 (Adverse)

• (ii) Labour Rate Variance [LRV] : Actual Time [Standard Rate – Actual Rate]
= 1,500 [15 – 20] = Rs.7,500 (Adverse)

• (iii) Labour Efficiency Variances [LEV] : Standard Rate [Standard Time –

Actual Time] = 15 [1,600 – 1,450] = Rs.2,250 (Favourable)

• (iv) Labour Idle time Variance [LITV] : Standard Rate x Abnormal Idle Time
= 15 x 50 = Rs.750 (Adverse)

• Reconciliation / Check : LCV = LRV + LEV + LITV Rs.6,000 (Adverse) =

Rs.7,500 (Adverse) + Rs.2,250 (Favourable) + Rs.750 (Adverse)
 SALES VARIANCES
• Sales variances are the result of two types of changes which may occur in
the comparison of budgeted sales with actual sales those due to price and
those due to volume. A change in volume may be caused by changes due to
either a change in quantity or a change in mix of sales.

• A part from the fact there are two methods of calculating variances there
are also two techniques which can be used and they are :
•
• (a) The quantity Technique : This uses quantity of sales as the basis of
calculations

• (b) The value Technique : It is concerned with the value of sales as the basis
of calculation.
 Variances based on Turnover
• 1. Value Variance : It is the difference between budgeted sales
and actual sales. Representing the total variance, made up of
volume and price variances, sales variances are the
responsibility of sales manager.

• The algebric representation of the variance is – Budgeted Sales

– Actual Sales (or) BS – AS

• 2. Volume Variance : The variance represents the amount by

which standards sales deviate from budgeted sales. It shows
the effect of a change in volume on total sales.

• The formulation for the variance is – Budgeted Sales – Standard

Sales (or) BS – SS
Conti…
• Price Variance : The amount by which actual sales deviate from
standard sales constitutes price variance. It reveals to management
the impact of change in prices on turnover.

• Symbolically it is represented by – Standard Sales – Actual Sales

(Or) SS – AS

• 4. Quantity Variance : When revised standard sales differ from

budgeted sales, it is called quantity variance. This variance shows
the position of actual quantity of sales, ad distinct from the mix of
sales, in comparison with budgeted or expected sales.

• The formula for the variance is – Budgeted Sales – Revised Standard

Sales (Or) BS ) – RSS
Conti…

• Mix Variance : The variance consists of the

deviation between revised standard sales and
standard sales. It highlights the fact that the
actual mix of sales has not been in the same
ratio as budgeted.
• The variance is algebraically expressed as –
Revised Standard Sales – Standard Sales (or)
RSS – SS
Other Variances
Conti…
 Variances based on Profits :
• Value Variance : The difference between budgeted profits and actual profits.
Constitutes value variance.
• Thus, the algebriac representation for the variance would be – Budgeted Profits –
Actual Profits (or) BP – AP

• 2. Price Variance : It is the difference between standard profit and actual profit.
This variance would exactly be the same as Price Variance calculated according to
the turnover method owing to the fact that a price change would affect turnover
and profit equally.
• Symbolically, the variance is – Standard profit – Actual profit (Or) SP – AP

• 3. Volume Variance : This is the amount by which standard profit differs from
budgeted profit. There is an obvious interrelationship between this variance and
the volume variance under the turnover method inasmuch as it would equal the
percentage of profit on the volume variance calculated under the turnover
method.

• The formula for the variance is – Budgeted profit – Standard profit (or) BP – SP
Conti…
• Quantity Variance : The amount by which revised standard
profit deviates from budgetary profit is called Quantity
variance. This is also related to the quantity variance under
the turnover method as it is equal to the percentage of
profit on the latter.
• The algebraic formulation for the variance is – Budgeted
profit – Revised Standard profit (or) BP - RSP

• 5. Mix variance : The difference between the revised

standard profit and standard profit is the mix variance.

• It can be symbolically express as – Revised Standard Profit

– Standard profit (or) RSP - SP
The following particulars are available in respect of the Sunshine Co. Ltd. for the
period 1992 :
• Sales value variance =
• Budgeted Sales – Actual sales
• X = (2,000 – 4,500) = 2,500 (F)
• Y = (9,000 – 11,550) = 2,550 (F)
• When actual sales are more than budget sales then it is considered as favorable
condition
• Alternatively total sales value variance = Total budgeted sales – Total actual sales =
11,000 – 16,050 = 5,050 (F)
• sales price variance = (Budgeted selling price – Actual selling price) x Actual selling
units
• X = (2 – 2.50) x 1,800 = 900 (A)
• Y = (3 – 2.75) x 4,200 = 1,050 (F)
• ---------------
• 150 (F)
• ---------------
• Sales mix variance = (Revised Standard sales mix – Actual sales mix) x standard
selling price
• Revised standard sales mix=Total actual sales mix/Total standard sales mix *
Standard quantity of sales
• X = 6,000 / 4,000 x 1,000 = 1,500 units
• Y = 6,000 / 4,000 x 3,000 = 4,500 units
• X = (1,500 – 1,800) x 2 = 600 (A)
• Y = (4,500 – 4,200) *3 = 900 (F)
• ------------
• = 300 (A)
• ------------
• Sales quantity variance = (Revised Standard quantity – Standard or budgeted
quantity) x Standard selling price
• X = (1,500 – 1,000) x 2 = 1,000 (F)
• Y = (4,500 – 3,000) x 3 = 4,500 (F)
• ---------------
• = 5,500 (F)
• --------------
The budgeted and the actual sales for a period
in respect of three products are given below :
• Sales value variance = Budgeted sales – Actual
sales = 20,000 – 21,900 = 1,900 (F)
• (2) Sales price variance = (Budgeted price –
Actual price) x Actual quantity.
• A = (6 – 5) x 1,200 = 1,200 F
• B = (10 – 9) x 700 = 700 F
• C = (15 – 14) x 600 = 600 F
• Sales volume variance = (Budgeted price - Actual
quantity) x Budgeted selling price
• A = (1,000 – 1,200) x 5 = 1,000 A
• B = (750 – 700) x 10 = 500 F
• C = (500 – 600) x 15 = 1,500 A
• ----------
• 2,000 A
• ----------
• (4) Sales mix variance = (Budgeted price per unit of
actual mix – Budgeted price per unit of budgeted) x
Total Actual quantity = (8.80 – 8.88) x 2,500
• (21900/2500-20000/2250)*2500=222(A)
• Sales quantity variance = (Total actual quantity
– Total budgeted quantity) x Budgeted price
per unit of budgeted mix = 2,222 (F)

• (2500-2250)*20000/2250
Thank you