In daily administrative functions, for instance, in business administration, revenue variance is usually used to evaluate the distinctions betwixt expected and actual revenue. However, revenue variance can either be favorable or unfavorable. Favorable arises in a case where actual sales exceed expected sales. On the other hand, unfavorable is usually the opposite of favorable. It occurs in a case where expected sales exceed actual sales. As a result, revenue variance will arise from the difference obtained betwixt the expected and actual selling costs or rather from a combination of the two. However, revenue variance occurs as a result of several reasons. This includes Cannibalization, competition, and also changes in prices. Cannibalization is a scenario where a new commodity tends to produce sales at an outlay of old commodities. Besides, competition arises when various service or goods providers decide to introduce new products with new features at favorable prices. On the other hand, a change in price occurs due to variations in units of sales. In this case, an increase in price could lead to a decrease in the number of unit sales, whereas a drop in price could result in a high number of unit sales (Kim & Beehr, 2020). As a result, the above variances can be used to make up conclusions on the impacts that my employer could have on the sales of products towards supporting the local charity group. To calculate the revenue variance, we first multiply the expected selling price, which is $2,970 (110% of $2700) by the expected sales volume, which is 300. The expected revenue, in this case, is $891,000. Secondly, we multiply the selling price, which is $2,700 by the actual sales volume, which is 400, since the sales received was one-third more than expected; thus, we obtain substantial revenue, which is $1,080,000. To get the total revenue variance, we will find the difference betwixt expected revenue and actual revenue, which is $189,000 ($1,080,000-$891,000). However, in the case of price, there was an unfavorable revenue variance since the actual selling price was less than the budgeted sales price. As a result, various measures can be put in place to take care of unfavorable prices. This includes raising the quality of customer items. On the other hand, there was a favorable revenue variance since the volume of actual sales was greater than the expected sales volume. Generally, the charity generated a favorable variance since much more revenue was generated as compared to the expected revenue. Variance analysis is an integral part of any institution. It enables institutions to know whether they are incurring losses or making profits. In this case, the charity incurred a favorable variance due to the high deviations in volume variance, which pulled up the revenue variance. In future issues, this might not be the same. The revenue variance acted as an independent variable that depended on volume variance to acquire a net favorable variance. The charity groups must focus on raising the revenue variance by increasing sales value while holding the volume of sales constant to generate a favorable variance. Therefore, in the following year, the management should focus on building a favorable variance by overestimating items' price, and also items quantity. This overestimation technique is, at times, referred to as 'budget slack.' It will enable the charity to portray a good look even though prices are high than expected (Graybeal, Franklin, & Cooper, 2018). This will allow the management to identify possible internal problematic areas without the knowledge of outsiders that making it easy to handle them. As a result, the administration will maintain a favorable positive variance in the following year, thus contributing to a positive review from the charity beneficiaries.
References
Graybeal, P., Franklin, M., & Cooper, D. (2018, July 24). BC Campus. Retrieved from Describe How Companies Use Variance Analysis: https://opentextbc.ca/principlesofaccountingv2openstax/chapter/describe-how-companies-use-variance-analysis/
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Kim, M., & Beehr, T. (2020). Job crafting mediates how empowering leadership and employees' core self-evaluations predict favorable and unfavorable outcomes. European Journal of Work and Organizational Psychology, 126-139.
