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

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Planning Variance – Elm Co (Q# 184, BPP)

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by John Moffat.
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  • August 26, 2018 at 4:41 pm #469533
    stulaganov
    Participant
    • Topics: 3
    • Replies: 2
    • ☆

    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?

    August 27, 2018 at 8:35 am #469595
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    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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