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Hi,
Can you please help me with the below question on BPP?
“A company uses a st. absorption costing system. The following figures are available for the latest accounting period in actual profit was $210,000.
Sales profit volume variance 10,000 A
Sales price variance 7,500 F
Total Variable cost variance 9,000A
Fixed Cost Expenditure variance 5,000F
Fixed cost volume variance 3000AWhat was the standard profit for actual sales in last accounting period? ”
Why don’t we consider the sales volume variance when we calculate back to get the answer?
Hi
The reason it is kept separate is that the sales volume variance used to flex the budgeted profit (budgeted units * std profit) and then this adjusted profit figure is reconciled via the other variances to obtain the actual profit figure in the proforma operating statement. Please see lecture below for a great explanation of this.https://opentuition.com/cima/cima-p1/cima-p1-analysis-of-variances-operating-statement/
Many Thanks
CathHi Cath,
Is that because the question asks ‘standard profit for actual sales in last accounting period’, not the original budget profit??
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