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A firm uses marginal costing. The following table shows the variances for a period when the actual net profit was $30 000:
Materials – 300$ adverse
labour – 800$ favourable
Overheads- 550 adverse
sales price variance- 400 adverse
sales volume contribution variance- 800 favourableWhat was the budgeted net profit for the period?
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Hi Joseph,
You need to use algebra, and have an understanding of the relationship between budgeted and actual profit and the variances: Adverse variances mean actual results were WORSE than planned, favorable means BETTER than planned.
I use the template below, and work backwards to find Budgeted Profit:
Budgeted Profit……X
Sales V. Var……….800 (we sold more units than planned)
Sales P Var………(400) (we sold the units at a lower price than planned)
Mats……………….(300)
Labor……………….800
OH…………………(550)
……………………..
Actual profit……..30,000Find X using a balancing figure approach, and that is your Budgeted Profit: 29,650.
Hi Steve,
Yes I know that, and I’ve done exactly the same thing , but it showed that it is the wrong answer.
This question is from myacca cbe demonstration. CBEs from december 2011
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There is a typo in the question:
In the print version of the pilot paper, they give ‘sales price variance FAVORABLE’ which would give an answer of 28,850
In the version you write above, ‘sales price variance is ADVERSE,’ the correct answer is 29650, as we both have confirmed.
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