Curious about variances


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I'm studying management accounting and currently going through variances. My way of learning quite doesn't fit with this lesson because I always try to understand what's going on. And now I need your help !


Study text includes this formulae ..

1) Sales price variance = (Actual price - Budgeted price) x Actual quantity sold

2) Sales volume variance = (Actual quantity sold - Budgeted quantity sold) x Standard profit or contribution


My question is why do we multiply the difference between actuals and budget by actual quantity when computing price variance and by standard profit or contribution when computing volume variance ?

I mean why can't we multiply the price difference by standard quantity when calculating price variance ?
why can't we multiply the volume difference by actual profit or contribution ?

Thanks for your valuable time my friend !
 
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kirby

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Simple answer is that what you suggest does not work. Best way to prove this is for you to try some examples on your own so you can see for yourself.
 

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