Answer (D) is correct . Variance analysis can be used to judge the effectiveness of selling departments. If a firm’s sales differ from the amount budgeted, the difference may be attributable to either the sales price variance or the sales volume (quantity) variance. Changes in unit selling prices may account for the entire variance if the actual quantity sold is equal to the quantity budgeted. None of the revenue variance is attributed to the sales volume variance because no such variance exists when a flexible budget is used. The flexible budget is based on the level of sales at actual volume.
Answer (A) is incorrect because The total flexible budget variance includes items other than revenue.
Answer (B) is incorrect because The sales volume variance represents the change in contribution margin caused by a difference between actual and budgeted units sold. However, given a flexible budget, there is no difference between budgeted and actual units sold. By definition, a flexible budget’s volume is identical to actual volume.
Answer (C) is incorrect because The total static budget variance includes many items other than revenue.
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