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A business uses marginal costing to calculate variances. If they were to use absorption costing the current method of calculating the sales volume variance would be?
A Higher or the same
B Lower or the same
C The same
D Different but not able to say higher or lowerI did B whereas answer is A.
I am unable to understand how.For example we have
Budgeted Sales 1000
Actual Sales 500
Budgeted Selling price per unit 30
Standard Variable costs 15
Standard Fixed costs 5Sales volume contribution will be 500x(30-15) = 7500 Adverse
Sales volume profit will be 500x(30-20)=5000 AdverseWhen Actual sales are lesser than Budgeted so we can say that Statement A is correct but if Actual Sales are greater than budgeted so A will be correct.
Actual Sales are 1000 while Budgeted Sales are 500. Costs and selling price is same.
Sales Volume Contribution would be 7500 Favorable
Sales volume profit would be 5000 Favorable.You are correct.
However the question does not ask which would be the ‘better’ variance (obviously an adverse variance of 5,000 is not as bad as an adverse variance of 7,500), but it simply asking which would be higher, and 7,500 is a higher number than 5,000.
Thank you professor. After your answer, I feel how silly questions I do.
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