Rate Volume Analysis Calculation

Calculate Price and Quantity Variances for Performance Evaluation

Analysis Summary

Total Variance:

Rate (Price) Variance:

Volume (Quantity) Variance:

Understanding Rate Volume Analysis

Rate Volume Analysis, often referred to as Variance Analysis, is a financial tool used to decompose the difference between budgeted and actual performance. It allows managers to understand if changes in revenue or costs were driven by price fluctuations (Rate) or changes in the amount of goods/services sold (Volume).

The Core Formulas

• Rate Variance: (Actual Rate – Budgeted Rate) × Actual Volume. This isolates the impact of pricing.
• Volume Variance: (Actual Volume – Budgeted Volume) × Budgeted Rate. This isolates the impact of quantity.
• Total Variance: (Actual Rate × Actual Volume) – (Budgeted Rate × Budgeted Volume).

Favorable vs. Unfavorable

When analyzing Revenue:

• Favorable (F): Results are higher than budget (e.g., higher price or higher volume).
• Unfavorable (U): Results are lower than budget (e.g., discounts given or lower sales units).

Practical Example

Imagine a software company budgets to sell 1,000 licenses at $100 each (Total: $100,000). At the end of the month, they actually sold 1,200 licenses but had to drop the price to $90 to close the deals (Total: $108,000).

• Rate Variance: ($90 – $100) × 1,200 = -$12,000 (Unfavorable)
• Volume Variance: (1,200 – 1,000) × $100 = +$20,000 (Favorable)
• Total Variance: +$8,000 (Overall Favorable, but driven entirely by volume).

function calculateRateVolume() { var br = parseFloat(document.getElementById('budgetRate').value); var ar = parseFloat(document.getElementById('actualRate').value); var bv = parseFloat(document.getElementById('budgetVol').value); var av = parseFloat(document.getElementById('actualVol').value); if (isNaN(br) || isNaN(ar) || isNaN(bv) || isNaN(av)) { alert("Please enter valid numeric values for all fields."); return; } // Logic var rateVariance = (ar – br) * av; var volumeVariance = (av – bv) * br; var totalVariance = (ar * av) – (br * bv); // Formatting function var formatVal = function(num) { var suffix = num >= 0 ? " (Favorable)" : " (Unfavorable)"; return num.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + suffix; }; // Display document.getElementById('resTotal').innerText = totalVariance.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }); document.getElementById('resRate').innerText = formatVal(rateVariance); document.getElementById('resVolume').innerText = formatVal(volumeVariance); var interp = ""; if (rateVariance 0) { interp = "Interpretation: You gained volume by lowering your price. Your increased quantity offset the price reduction."; } else if (rateVariance > 0 && volumeVariance 0 && volumeVariance > 0) { interp = "Interpretation: Exceptional performance! Both pricing power and demand increased simultaneously."; } else { interp = "Interpretation: Performance declined in both pricing and volume compared to the budget."; } document.getElementById('interpretation').innerText = interp; document.getElementById('varianceResults').style.display = 'block'; // Color coding for total document.getElementById('resTotal').style.color = totalVariance >= 0 ? "#27ae60" : "#c0392b"; document.getElementById('resRate').style.color = rateVariance >= 0 ? "#27ae60" : "#c0392b"; document.getElementById('resVolume').style.color = volumeVariance >= 0 ? "#27ae60" : "#c0392b"; }