[ Music ] >> Now we turn to lesson three dash three. In lesson three dash three, we turn our attention to revenue variances. Specifically our objectives are to ultimately understand fundamentals of revue variances, how to calculate revue variances, and how to interpret those revenue variances. Just like with cost variances, we're going to develop a generic frame work for calculating revenue variances. When we think about revenues, we can think about two inherent drivers of those revenues, just like with cost variances, we can think about those things happening at an actual level, or an expected, or budgeted level. So, when we think about actual revenues, we can think about the product that we sell, and the price we charge our customers for each unit of that product. So, we have an actual price to calculate total revenues we would take that actual price again per unit sold, and multiply by some actual quantity. By multiplying these to components, we would have total actual revenues. Now, when we make the world a little but more complex, we can think of a multi product firm. And in multi product firms, they usually have cut-- , they usually have products that are compliments, or substitutes. So just like in previous modules, we can think of the percentage of our overall quantities sold, of a particular type of product. For example, in a couple of slides we'll talk about a cookie manufacturer. And the cookie manufacturer might have three different types of cookies. Some proportion of their overall cookie sold are of variety one, another proportion is of variety two, and the third is comprised of variety three. So, in actual terms we can think about the percentage of our overall quantity sold that is of a particular product type, and that we'll call the actual mix, or proportion of our overall quantity cook-sold, that is of a particular type of product. Now, just like in cost variances, we can have an analogous world where everything is budgeted or standardized. With respect to revenues, we usually refer to revenues and prices as budgeted as opposed to standards, that's just to help differentiate the different types of stan-- different types of variances. But, over in our complete budgeted world, we would have the budgeted price for our product, the expected or budgeted mix, and the budgeted total quantity of units sold. Multiplying these three budgeted items yields a total budgeted revenue dollar amount. And just like with cost variances, we can turn one dial at a time, separating our individual reasons as to why the actual revenues collected differ from that which was expected or budgeted. So, we can move to a flexible budget type of column, where the budgeted price and budgeted mix are held constant, but rather than use the total quantity sold, we, on a budgeted basis, we use the actual quantity. Multiplying those three components gives us another, another column total. And again the difference between what is column three and four, or the two right hand columns, parses out the difference between the actual quantity and total terms sold, versus that which was expected. Another dial turn, leads us to think about the mix. We leave our price in budgeted terms. We've already converted out budgeted quantity to actual quantity, so we'll leave that as actual quantity, and we'll change the next dial to actual mix. The difference between columns two and three, parse out the source of differences between actual and budgeted proportions or mix of sales. And finally the comparison between the first and second column, parses out differences between actual and budgeted selling price. Just like in the cost variance framework, we have three individual variances that we can focus on. And again, depending on what company organization is using this analysis, will determine what names are being used. [inaudible] you can refer it to the selling price variance, the sales mix variance, and the quantity, or volume, variance. Again just like the cost variances, analyzing at this level of detail allows us to understand the role of different components fundamental issues in the calculation of revenue and how they drive differences between actual revenues and budgeted revenues.