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In the following question, I did not understand that why sales volume variance is given as one of the options if it is not mentioned in the stem of the question in the first place. Also, what is the correct answer to this question and why the correct option is really correct and the others are not?
Question: T Co usually has a quarterly labour cost of $2500,000. Material costs (mainly copper) were $3000,000 in January to March. The worldwide cost of copper has increased in the second quarter by 15%. Overheads were $45,000,000 in January to March.
Which two of the following variances for April to June are worth investigating as the reasons for the variance are unknown?1) Sales volume variance of $3,000,000 favourable.
2) Overhead expenditure variance of $4,000,000 adverse.
3)Material price variance of $450,000 adverse.
4) Total direct labour variance of $400 adverse.Why are you attempting questions for which you do not have an answer? You should be using a Revision Kit from one of the ACCA approved publishers – they have answers and explanations.
It is adverse variances that most need investigating and there are three of them.
However, given that we know the cost of copper has increased by 15%, we already know why the material price variance is 450,000 and so there is no real need to do more investigation.
If the sales volume variance had been adverse then we would want to investigate that as well. The fact it not mentioned in the stem of the question is of no relevance.
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