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The question is as such:
Std contribution on actual sales is 44 000
Variances :
Total variable cost variance 6 500 adv
Sales price variance 2 000 fav
Sales volume contribution variance 4 500 advWhat is the actual contribution for the period?
My question is why is the sales volume contribution variance is not included in the workings the answer. In my mind:
Sales were less for the period so contribution was also less.
Units (budget – actual) x std contribution = Sales volume contribution variance.Obviously the questions cant be obvious to answer and i like that it makes me think but sometimes i just cant make any sense of it.
The answer is 44000 – 6500 + 2000 = 39 500This is an unusual format question – you are right that it makes you think…..
Your idea makes sense (sales are less so contribution must be less)… except that sales price variance is measured in selling prices ( actual Vs standard price)… whereas sales volume variances are measured in standard contribution)…
If you recall the near to the top of the standard format operating statement…
Standard contrib on actual sales. = 44,000
+/- Sales Price Variance = 2000F
$46,000
+/- all material/lab/voh variances 6500 A
Actual Contribution = $39,500The sales volume variance reconciles the budgeted contribution to the standard contribution on the first two lines of the operating statement & is not asked for here.
Hope that makes sense – revisit your operating statement notes & hopefully you’ll see what im saying 🙂
Many Thanks
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