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Hi sir, there are 2 questions in CBE specimen that I’m confused by the answer:
1. A company uses marginal costing. The following variances occurred in the last period when the actual net profit was $40,000.
Materials $900 adverse
Labor $1,000 favorable
Overheads $700 adverse
Sales price $500 favorable
Sales volume contribution $900 favorableWhat was the budgeted net profit for the last period?
The answer was just 40,000 add or subtract all the variances and finally came to an answer of $39,200.
I’m so confused because the sales volume variance is based on marginal costing, not absorption costing but it was just added on the budgeted net profit to get actual net profit, and I don’t know why.2. Under which of the following labor remuneration methods will direct labor cost always be a variable cost?
– Differential piece rate
– Piece rate
– Group bonus scheme
– Day rateThe answer is Piece rate. But I’m not sure why differential piece rate is not correct.
Could you please help, sir. Thank you so much!!
Q1. The sales volume variance will increase the contribution by 900 (and therefore increase the profit by 900).
The variable cost variances (materials, labour, and variable overheads) will increase or decrease the contribution (and therefore increase of decrease the profit).The fixed overhead variance will not affect the contribution, but will affect the profit.Q2. This question is a little unfair because it will be a variable cost. However it will not be linearly variable, whereas just piece rate will be linearly variable.
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