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Planning Variance - Elm Co (Q# 184, BPP)

SSarvar7y ago
I have a question about an answer given by BPP for the question 184 (Elm Co): The question in BPP: Elm Co is a company which operates in Sealand. Elm Co budgeted to sell 25,000 units of a new product during the year. The budgeted sales price was $8 per unit, and the variable cost $4 per unit. Actual sales during the year were 22,000 units and variable costs of sales were $88,000. Sales revenue was only $9 per unit. With the benefit of hindsight, it is realised that the budgeted sales price of $8 was too low, and a price of $10 per unit would have been much more realistic. Find the sales price planning variance. The answer in BPP $44,000 F Planning (selling price) variance Original budgeted sales price: $8 Revised budgeted sales price: $10 Sales price planning variance $2 (F) * actual units sold 22,000 units Planning variance for sales price $44,000 (F) My question is why the variance is Favourable when the original planned price (i.e. $8) is LESS than the revised price (i.e. $10)? Shouldn't it be Adverse?
John MoffatJohn MoffatTutor7y ago#1
We are looking at the sales price. If the price is higher then they make more profit, which means the variance is favourable!!!
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