PROFIT VARIANCES

Sales variances are important as they have a direct bearing on profits earned by the organization.   thus, they can be used as the basis of determining profit variance. The overall Profit Variance is categorized into - i) Sales price variance and ii) Sales Volume Variance, which is sub- categorized into - a) Sales Price variance b) Sales Volume Variance and iii) Cost Variance.  Except Cost Variance, there is no differentiation between a variety of Sales Variances and Profit Variances.

Overall Sales Variance = Standard / Budgeted profit - Actual profit (Unfavorable) (or) Actual Profit - Standard / Budgeted profit (Favorable)

Cost Variances: They get arise when actual costs are not similar from standard costs.

Cost Variances = (Standard cost - Actual cost) Actual quantity sold (Favorable) (or) (Actual cost - Standard cost) Actual quantity sold (Unfavorable)