The selling price variance can be defined as the variance between the anticipated selling price and the actual selling price of the product that result in alteration of the expected revenue. The formula of selling price can be shown as under:-
Selling Price Variance = (Actual Selling Price – Budgeted Selling Price) x Actual units sold
If the selling price variance is unfavorable it is noted that the actual selling price is less than the budgeted selling price on the other hand if the selling price variance is favorable that means the actual selling price is more than the budgeted price and firm will earn the expected revenue. Before finalizing the actual sale of the product a selling budgeted price is elaborated by the management and the decision makers that depend upon the actual cost of the product, marketing strategies and the future demand of the product. Sometimes the anticipated price becomes absolutely equal to the actual selling price of the product in the market however sometimes the economic conditions, market demand and other issues create difference in budgeted price and the actual price that results in the arousal of selling price variance.
For example a company ABC is producing widgets that they expect to sale at the selling price of $80 per unit that is based on the historical data of price and demand of the widgets. However during the first year the arrival of a new supplier greatly affects the price of the widgets and it reduced to $ 70. Now suppose the numbers of units sold in that time period are 20,000 so selling price variance can be calculated as:-
Selling Price Variance = (70 – 80) x 20,000 = 200,000
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