# Doubt

This topic contains 6 replies, has 2 voices, and was last updated by  John Moffat 3 months, 3 weeks ago. This post has been viewed 151 times

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• csacct1
Participant

Hi, sorry for posting F2 doubts here as i can’t post or reply anything on F2 forum..

http://oi43.tinypic.com/fy34nk.jpg for this question. the answer for sales price and sales volume variance differs from mine.

what i did was, Sales price : AM-SM x AV which is (102-75)-(100-75)x1200 = 2400 F
and sales volume AV-BV x SM 1200-1000 x 25 = 5000 F

May i know whats wrong with my steps? Thank you

csacct1
Participant

oops sorry, i think i attached the wrong question. here http://oi40.tinypic.com/9u1bvo.jpg

Sales price : AM-SM x AV which is (102-75)-(100-75)x1200 = 2400 F
and sales volume AV-BV x SM 1200-1000 x 25 = 5000 F

is this correct?

And also, if the actual production and sales units is different, how do we check if the actual profit in reconcile part is correct ?

John Moffat
Keymaster

Your sales price variance is correct – 2400 F

However your sales volume variance is wrong. The company is using absorption costing (because overheads have been absurd on the cost card) and therefore the volume variance should be 200 (extra units) x \$20 (the standard profit per unit) = \$4000

(You have multiplied by \$25 – either this was just a mistake, or you took \$25 because the contribution would be \$25 per unit. If they were using marginal costing then this would be correct, but this company is using absorption costing.)

With regard to checking the actual profit, I will tell you, but in Paper F2 you cannot be asked to do this (and you cannot be asked to produce an operating statement either!!).

To check the actual profit you subtract the cost of sales from the revenue. The actual revenue is obvious. To get the cost of sales, you take the cost of production (of 1400 units in this question) and subtract the value of the closing inventory (200 units in this question). Just be careful though – in management accounting the closing inventory is valued at standard cost per unit (even if actual costs are different). In this example the closing inventory would be valued at 200 x \$80.

csacct1
Participant

Thanks so much, i understood what you have said. i have been doing marginal costing for it, Sir, how do you know the question ask for absorption costing?

John Moffat
Keymaster

Because the cost card has included fixed overheads – they have been absorbed.
If it was marginal costing they would not appear as a unit cost on the cost card.

csacct1
Participant

oh okay! Thank you so much for your explanation.

John Moffat
Keymaster

You are welcome

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