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The following question is taken from the December 2012 exam paper.
A company uses a standard absorption costing system. The following figures are available for the last
accounting period in which actual profit was $108,000.
Sales volume profit variance 6,000 adverse
Sales price variance 5,000 favourable
Total variable cost variance 7,000 adverse
Fixed cost expenditure variance 3,000 favourable
Fixed cost volume variance 2,000 adverse
What was the standard profit for actual sales in the last accounting period?
Please do not just type out full questions and expect to be provided with a full answer. You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer that you are not clear about and then I will explain.
The standard profit for the actual sales when adjusted for all the variances except for the sales volume variance gives the actual profit. Since we know the actual profit we can work ‘backwards’ using all the variances except for the sales volume variance to calculate the standard profit for the actual sales.