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A company uses standard marginal costing. Last month the standard contribution on actual sales was $40 000 and the following variances arose:
Sales price variance $1000 F
Sales volume contribution variance $3500 A
Fixed overhead expenditure variance $2000 A
There were no variable cost variances last monthWhat was the actual contribution for last month?
The answer is $41000
I am unsure of how to arrive to this answer. I was wondering if there was any formula or something that I could use to understand how to arrive to the actual contribution from budgeted contribution? I hope that makes sense!
There is no formula – this is just testing your basic understanding of variances.
The standard contribution on actual sales is 40,000. The sales price variance is 1,000 (F) and so the actual contribution is 41,000!
Obviously the fixed overhead variance is irrelevant because we are looking at the contribution, and the sales volume variance is irrelevant because we are given the standard contribution on actual sales, rather than the budgeted contribution.
Do not simply try and learn formulae. The examiner asks questions in such a way as to check that you understand what is happening rather than that you have simply learned formulae.
Have you watched my free lectures on variances? The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
oh yes, thank you, sir. I passed my F2 exam yesterday and I couldn’t have done that without your help. You’re an excellent teacher. 🙂
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