This solution analyzes the impact of a sales price reduction on sales variances.
Sales Price Variance Analysis
The Sales Price Variance (SPV) measures the difference between the actual revenue received and the revenue that would have been received if the sales had occurred at the standard price.
- Standard Selling Price = Rs. 80 per unit
- Actual Selling Price = Rs. 78 per unit
- Actual Selling Price - Standard Selling Price = Rs. 78 - Rs. 80 = - Rs. 2
- SPV = (Actual Selling Price - Standard Selling Price) × Actual Quantity Sold
- SPV = (Rs. 78 - Rs. 80) × Actual Quantity = - Rs. 2 × Actual Quantity
- Since the actual selling price is less than the standard price, the Sales price variance is unfavourable. Conclusion A is correct.
Sales Volume Variance Analysis
The Sales Volume Variance (SVV) measures the impact of the difference between the actual sales volume and the budgeted or standard sales volume.
- The reduction in sales price led to an increase of 1000 units sold.
- An increase in sales volume typically leads to higher profits (assuming positive contribution margin).
- Therefore, the Sales volume variance is favourable. Conclusion B is correct.
Sales Activity Variance Analysis
The term 'Sales Activity Variance' can be interpreted in context. Here, it likely refers to the revenue associated with the increase in sales activity (volume) at the original price.
- Increase in Quantity Sold = 1000 units
- Original Selling Price = Rs. 80 per unit
- Potential Revenue from the increased activity = 1000 units × Rs. 80/unit = Rs. 80,000
- Since this represents a positive outcome from increased volume, the Sales activity variance is Rs. 80,000 (favourable). Conclusion D is correct.
Total Sales Variance Evaluation
The Total Sales Variance (TSV) is the sum of SPV and SVV. It represents the overall difference between actual and budgeted sales revenue.
- TSV = SPV + SVV
- SPV = - Rs. 2 × Actual Quantity (Unfavourable)
- SVV = 1000 units × Standard Contribution Margin per unit (Favourable)
- The net result (favourable or unfavourable) depends on the magnitude of the contribution margin per unit and the actual quantity sold. This cannot be determined definitively.
- Therefore, concluding that the Total sales variance is unfavourable (Conclusion C) is not a decisive conclusion based solely on the information provided.
Evaluation of Specific Variance Amount
Option E suggests a specific amount for the Sales Price Variance.
- As calculated earlier, SPV = - Rs. 2 × Actual Quantity.
- This variance is only Rs. 2000 (unfavourable) if the Actual Quantity Sold was 1000 units. However, the problem states 1000 units *more* were sold, implying the actual quantity is greater than the baseline quantity.
- Therefore, the statement that Sales price variance is Rs. 2000 (unfavourable) is not necessarily correct. Conclusion E is incorrect.
Final Conclusions on Variances
Based on the analysis:
- Conclusion A is correct (SPV is unfavourable).
- Conclusion B is correct (SVV is favourable).
- Conclusion D is correct (Sales activity variance interpreted as Rs. 80,000 favourable).
- Conclusion C is uncertain/not necessarily correct.
- Conclusion E is incorrect.
The correct option includes conclusions A, B, and D.