Fixed Budget Profit

Please, don’t simply set me a question. Tell me what your problem is and I will try and help 🙂

Since $120,000 is the standard profit on the actual sales (not the actual profit) the only different between it and the original budgeted profit will be the sales volume variance.

So….if you adjust ‘backwards’ for the sales volume variance you will get the original budget profit.

I assume that you have watched the free lectures on variances, in which case you will know that the difference between the original budget profit and the actual profit is due to three basic reasons:
The sales volume variance (which looks at the affect of selling more or less than the original budget); the sales price variance (which looks at the affect of selling at a different selling price than budgeted); and the cost variances (which look at the affect of the costs being different that budgeted).

If the question had given the original budget profit, then all three variances would be relevant.
However, the question did not give the original budget profit – it gave the standard profit on the actual sales. This will be different from the original budget profit because of the sales volume variance.

So the reason the actual profit is different from this standard profit on actual sales is only because of the other two variances – sales price and costs.

I do suggest that you watch the free lectures on variances if you have not already done so,