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Hi john sir, how are you? Hopes you r best at health: kindly help me with the following:
Q#1 std costing provides which of the following?
I, Targets and measures of performance
ii. Information for budgeting
iii. Simplification of inventory control systems
iv. acutal future costsKindly explain a little bit more point iii.
Q#2
std selling price per unit 70
std direct material cost (5kg @ 2 per kg) 10 per unit
budgeted total material cost of sales 2300 per month
budgeted profit margin 6900 per monthActual results as follow:
Sales revenue 15200
total direct material cost 2400
direct material price variance 800 advers
direct material usage variance 400 favThere was no change in inventory levels during the month
What was the sales volume profit variance ?
John sir kindly guide me. THanx
Q1 Management accounting usually involves preparing profit statements every month. Some months costs are likely to be higher than average and some months lower than average. If we kept changing the inventory values every month it would be very confusing.
With standard costing we value the inventory at standard cost each month which makes it easier to deal with.Q2 Budgeted materials cost is 2,300, so budgeted production is 2300 / 10 = 230 units. There is no inventory, so budgeted sales are 230 units.
Budgeted profit is $6,900, so standard profit is 6900 / 230 = $30 per unit.Actual material cost is 2,400 and so the standard cost for the actual production must be 2,400 – 800 + 400 = 2,000.
Since the standard cost per unit is $10, it means they actually produced 2,000/10 = 200 units.
There is no change in inventory so they must have actually sold 200 units.So sales volume variance is (230 – 200) x $30 = $900 (adverse)
Thanks john sir for your kind reply. In question 2, you mentioned 2300 / 10 = 230 units production but john sir i get it as units of material used not the production as we are dividing total material cost dividing by per unit material cost. Kindly explain
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