Final answer:
A favorable sales volume variance in sales revenue indicates a higher number of units sold than expected. This focuses on quantity, not sales price, variable costs, or fixed costs. Decisions on pricing should consider the elasticity of demand for revenue maximization.
Step-by-step explanation:
A favorable sales volume variance in sales revenue suggests an increase in the number of actual units sold when compared to the expected number of units sold. This variance suggests that the company has succeeded in selling more units than it had anticipated in its planning and budgeting. The variance does not directly relate to the actual sales price per unit, variable costs per unit, or fixed costs, but rather to the quantity sold. Factors affecting this could include market demand, effectiveness of sales strategies, or broader economic conditions.
When advising a company about pricing, if the elasticity of demand for their product is less than 1, an increase in price could lead to an increase in total revenue despite a decrease in the quantity sold. However, if elasticity is 1, it indicates that the total revenue is at its maximum at the current price level, meaning no further pricing action is needed for revenue maximization.