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A company sold 20,000 units in a period when budgeted sales were 18,000 units.
On an absorption costing basis the sales volume profit variance for the period had a value of $10,000.The standard fixed overhead OAR was $4 per unit
what would be the sales volume contribution variance be on a marginal costing basis ?I tried to solve this question but i could not find the value of cont.pu. the answer given is $18,000 (F). No working is given which left me clueless. i would appreciate your help sir.
Since the sales volume variance using absorption costing is $10,000 and they sold 2,000 units more than budget, the standard profit per unit must be 10,000/2,000 = $5 per unit.
Since the fixed overheads are $4 per unit, the standard contribution must be 4 + 5 = $9 per unit.
Therefore the sales volume variance using marginal costing must be 2,000 x 9 = $18,000.
Sir , can you explain why you add up the fixed overhead $4 with the standard profit $5 ? i’m clueless.
You really should watch my free lectures – they are a complete free course for Paper F2 and cover all of this!!
Contribution is selling price less variable costs, which is the same as profit plus fixed costs.
Thank you so much sir for your brilliant lectures and for your help . I took FMA last Friday and passed with 70% . Once again thank you so much sir John !:)
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