Sales volume variance is the difference between the actual sales and the projected sales that results in the contribution profit of a business entity. There may be a number of reasons of difference between the actual and the budgeted sales that can be explained by the business managers. The formula of Sales Volume Variance can be shown as under:-
Sales Volume Variance = Actual Number of Units Sold – Budgeted Number of Units x Standard profit per unit volume
Sales volume variance is different from other form of variance such as labor efficiency variance and material usage variance because it not only measures the change in the sales volume due to the result of any abnormal or additional activity but it also measure the difference in the contribution profit that results due to the change in the sales volume.
Sales volume variance is measured differently by using the absorption costing technique and its calculation is a bit different when using marginal costing system. When using absorption costing technique sales volume variance is calculated by using profit per unit of volume sold where as calculating the sales volume using marginal costing system we use contribution profit per unit in order to calculate sales volume variance.
If the sales volume variance is favorable or positive it means high sales and a high profit or contribution margin as compared to the one calculated in the forecasts or budgets. On the other hand unfavorable sales volume variance means that profit will be less as compared to the budgeted profit because sales will be less as compared to the forecasted sales.