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Extracted from Mock exam:
A company has budgeted on selling 7,000 units of product X at a selling price of $30 per unit, and 3,000 units of product Y at a selling price of $40 per unit.
The standard contribution per unit is 30% of selling price for both products.
They actually sell 8,000 units of X and 7,000 units of Y.
What is the sales quantity variance?
Average standard contribution = 99,000/10,000 = $9.90 per unit
Actual total sales = 15,000 which is 5,000 more than budget
Sales Quantity variance = 5,000 x $9.90 = $49,500 (favourable)
The answer I got was $57,000 F because I used the individual contribution for each product rather than an average standard contribution.
Why are we using average standard contribution as opposed to each product’s individual contribution multiplied by the difference in units budgeted and actually sold?
You can use the individual contribution for each product, but for the quantity variance you take the actual total sales split in the standard mix.
Actual total sales are 15,000 units.
So actual sales at standard mix is X: 7/10 x 15,000 = 10,500; and Y: 3/10 x 15,000 = 4,500.
At standard contribution this gives: (10,500 x $9) + (4,500 x $12) = $148,500
Standard contribution for budget sales is: (7,000 x $9) + (3,000 x $12) = $99,000
The variance is 148,500 – 99,000 = $49,500 favourable.
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