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)