Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Planning Variance – Elm Co (Q# 184, BPP)
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- August 26, 2018 at 4:41 pm #469533
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 #469595We 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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