Measuring differences between actual sales and expected sales Show
What is Revenue Variance Analysis?Revenue Variance Analysis is used to measure differences between actual sales and expected sales, based on sales volume metrics, sales mix metrics, and contribution margin calculations. Information obtained from Revenue Variance Analysis is important to organizations because it enables management to determine actual sales performance in relation to the projected or perceived performance of the company for specific products. It helps businesses identify which products are performing better in the market. Overall, variance analysis helps management make better strategic and businesslevel decisions to maximize profitability. Learn to perform revenue variance analysis in our online forecasting course. Four Types of Revenue VarianceSimilar to variance analysis, we can use the same columnbased approach to calculate the four different types of revenue variance. And finally, Sales Volume Variance (SVV) = Sales Mix Variance + Sales Quantity Variance. These variances are summarized in the following table:
ExampleData from XYZ Company with equal Actual CM and Budgeted CM.
To determine the relevant variances, we use the column method shown above. First, organize a table that outlines all relevant information regarding the two products.
Standard Ticket: SVV = 22,000 U + 8,000 F = 14,000 U Luxury Ticket: SVV = 5,500 F + 3,000 F = 8,500 F Download the Free TemplateEnter your name and email in the form below and download the free template now! Revenue Variance Analysis TemplateDownload the free Excel template now to advance your finance knowledge! AnalysisFrom the above example, management can draw several conclusions:
Market Share and Market Size VariancesJust like the variance analysis shown above, companies can also take their analysis one step further to determine market share and market size variances. Market share variance is the difference between actual market share and the estimated/standard market share at the same volume of sales. On the other hand, market size variance is the difference between actual industry sales and estimated industry sales at a constant market share percentage. When the market share and market size variances are added together, they will be equal to the total sales quantity variance of all products sold by the company. Learn to perform revenue variance analysis in our online budgeting course. Importance of Variance AnalysisVariance analysis, as a whole, is imperative for companies because it gives management information that may not necessarily be obvious. By actually examining all individual costs, sales information, and contribution margin figures, companies can better measure the effectiveness of production methods and the performance of specific products relative to others. For example, even though a certain product may provide a larger contribution margin, leading to higher profitability, it may actually be performing worse than a lower contribution product. Although in the short run the higher CM product may be more appealing, companies should consider which products to focus their efforts on if they intend to maintain longevity in today’s highly competitive market. Additional ResourcesThank you for reading CFI’s guide to Revenue Variance Analysis. To help you advance your career, check out the additional CFI resources below:
What is the revenue variance formula?This is the difference between the actual and expected number of units sold, multiplied by the budgeted price per unit. The intent of this variance is to isolate changes in the number of units sold.
What is revenue variance in accounting?Revenue Variance Analysis is used to measure differences between actual sales and expected sales, based on sales volume metrics, sales mix metrics, and contribution margin calculations.
How do you calculate revenue and spending variance?There are many variations for calculating spending variance for different types of expenses, but the basic formula for this calculation is:. Actual cost  expected cost = spending variance.. (Actual variable overhead rate  expected variable overhead rate) x hours worked = variable overhead spending variance.. How do you calculate static budget variance of revenue?To calculate a static budget variance, simply subtract the actual spend from the planned budget for each line item over the given time period. Divide by the original budget to calculate the percentage variance.
