1. avatar says

    Dear Sir,
    I have another question in this part. When you make operating statement, the original budget profit is 56000, after add sales volume variance 2800, which becomes 58800, equal to flexed profit we got from the previous table. It’s easy to understand, because flexed budget is based on 8400. The sales volume is added 400.
    But 16800 is sales price variance, also is sales revenue variance, right?
    So my question is: does it make sense to use 58800( flexed profit) -16800( sales revenue variance) =42000? What’s this 42000? I am confused . Hope you can help me! Many thanks to you!:))

    • Profile photo of John Moffat says

      @ryanpieblock, In management accounting we always value the inventory at standard cost. The reason is that the management accountant will usually be doing statements monthly and it will be silly to keep valuing the inventory differently just because some months we spent a more than we should have, and some months we spent less than we should have.
      This is different than the financial accounts (because in financial accounts inventory will be valued at actual cost) but we are not doing financial accounts.

      In practice the standard cost might well be changed during the year, but not for Paper F2.

  2. Profile photo of Miss A.. says

    Dear Sir,I can’t get why is sales price variance ‘ adverse’ in the above example??

    shouldn’t it be favourable…??
    because actual sales at actual Selling price ……..$613200
    actual sales at standard selling price………………..$630000

    actual results are lower than expected.Shouldn’t it be favourable because it is saving cost??

Leave a Reply