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A company uses standard absorption costing. Actual profit last period was $25,000, which was $5,000 less
than budgeted profit. The standard pr
ofit on actual sales for the period
was $15,000. Only three variances
occurred in the period: a sales volume profit variance, a sa
les price variance and a direct material price variance.
Which of the following is a valid co
mbination of the three variances?
Sales volume Sales price Direct material
profit variance variance price variance
A
$15,000 A $2,000 F $8,000 F
B
$5,000 A $2,000 A $2,000 F
C
$15,000 A $2,000 A $8,000 A
D
$5,000 A $5,000 F $5,000 AThe budget profit must be 30000 (25000 + 5000)
The sales volume variance is the difference between standard profit and budget profit and is therefore 15,000 adverse (30000 – 15000).
So the answer has to be A or C
The total of all the variances is the difference between actual and budget profit, which is 5,000 adverse.
So the answer must be A (the total of the variances in answer C is not 5,000)
(The free lectures on variances will help you)
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