MA Chapter 26 Questions Variance Analysis
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Another question from the mock paper which i can鈥檛 seem to grasp. I re-watched the lecture videos and am more confused than ever with the following questions:
Able Ltd is considering a new project, details below:
Initial cost: $300,000
Expected life: 5 years
Estimate scrap value: $20,000
Addition revenue from project: $120,000 per year
Incremental costs from project: $30,000 per year
Cost of Capital: 10%
a) calculate net present value of project
Sir how do you did this question step by step
Sir John, for Q1, the sales price variance. Kindly explain, please.
Thanks very much
It is the actual sales multiplied by the difference between the actual selling price and the budgeted selling price.
10,500 x (19.50 – 20.00) = 5,250 adverse.
This is all explained in my free lectures on variances.
Dear John,
Regarding Q3)
When Marginal Costing is Used, Fixed Production Costs are treated as Period Costs & Is Not Accounted For in the Production Cost Card,
Hence, Avoiding Over/Under Absorption When Using Marginal Costing.
So Why would there be any Variance in Fixed Production Overheads when Marginal Costing is Used?
Shouldn’t the Answer to Question 3 be: “True”?
Thanks!
With marginal costing the profit is the contribution less the fixed overheads. If the total fixed overheads are different from the budgeted total then the profit will also be different.
I specifically explain this in the last of the variance lectures.
Oh my bad,
Thank You for Recapitulating it! 馃檪
sir i dont understand question 5 please explain in simple calculation
The question says that the variance is 2% of budget. Therefore the budget must be 1,250 / 2% = 62,500.
The variance is 1,250 adverse, so the actual fixed overheads are 1,250 less than budget. 62,500 – 1,250 = 61,250.
1250 favorablely ,not adverse
one few of the chapters in which got 100 % in the test. You taught amazingly. You are a Super Teacher !
can you please give me a more detailed explanation for the last question? I don’t understand it fully.
suppose, budgeted fix O/H= 100x
then , actual O/H will be 98x
fix O/H exp = budgeted-actual
1250=100x-98x
x=625
therefore, actual O/H exp=98*625=61250
i think so too
Good 馃檪