A company has the following data: budgeted sales price per unit. $40, actual sales price per unit: $38, actual quantity sold: 2,700 units. What is the sales price variance?

Rationale

$5,400 unfavorable

The sales price variance is calculated by taking the difference between the budgeted and actual sales prices, multiplied by the actual quantity sold. In this case, the budgeted sales price was $40, the actual sales price was $38, and the actual quantity sold was 2,700 units, resulting in a variance of $5,400 unfavorable.

A ($4,500 favorable) YOUR ANSWER

This option incorrectly suggests a favorable variance, which would imply that the actual sales price exceeded the budgeted sales price. Since the actual sales price is lower than the budgeted price, this option does not reflect the correct calculation or interpretation of the variance.

B ($4,500 unfavorable) YOUR ANSWER

While this choice acknowledges an unfavorable variance, the calculation is incorrect. The variance is derived from the difference of $2 ($40 - $38) multiplied by 2,700 units, yielding a total unfavorable variance of $5,400, not $4,500.

C ($5,400 favorable) YOUR ANSWER

This choice mistakenly describes the variance as favorable. A favorable variance occurs when actual performance is better than budgeted; however, since the actual sales price is lower than budgeted, it results in an unfavorable variance of $5,400.

D ($5,400 unfavorable) CORRECT

This option correctly identifies the sales price variance. The calculation is: (Budgeted Price - Actual Price) x Actual Quantity Sold = ($40 - $38) x 2,700 = $5,400 unfavorable. This reflects the loss in revenue due to selling at a lower price than budgeted.

Conclusion

The sales price variance is a critical metric for evaluating pricing performance against budget expectations. In this scenario, selling at $38 instead of the budgeted $40 leads to a $5,400 unfavorable variance, indicating that the company earned less revenue than anticipated. Understanding this variance helps in making informed pricing and sales strategies to improve future performance.

A company has the following data: budgeted sales price per unit. $40, actual sales price per unit: $38, actual quantity sold: 2,700 units. What is the sales price variance?

$5,400 unfavorable

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