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- This topic has 3 replies, 2 voices, and was last updated 5 years ago by John Moffat.
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- May 9, 2019 at 4:28 pm #515435
Question
A company makes and sells three products. Budgeted and actual results for the period just ended were as follows.
Product Budgeted sales Budgeted profit per unit Actual sales Actual profit per unit
Units $ Units $
X 800 10 700 8
Y 1,000 6 1,200 6
Z 600 12 350 16
—— ——–
2,400 2,250
What was the sales quantity variance?Answer
The correct answer is: $1,325 (A)
Budgeted sales Std profit Budgeted profit
Units $ per unit $
X 800 10 8,000
Y 1,000 6 6,000
Z 600 12 7,200
———- ———-
2,400 21,200Weighted average standard profit per unit = $21,200/2,400 = $8.8333
Quantity variance in units = 2,400 – 2,250 = 150 units (A)
Quantity variance in $ (standard profit) = 150 (A) × $8.8333 = $1,325 (A)My question, why are they using weighted average?
Thank you
May 10, 2019 at 7:20 am #515467Because for the quantity variance we are ignoring the change in the mix. If the mix stays the same, then the average profit per unit stays the same as well.
I always think it is more obvious doing it the way I do in my free lectures, which of course gives exactly the same answer 🙂
May 11, 2019 at 10:04 am #515592Thank you sir.
May 11, 2019 at 1:31 pm #515610You are welcome 🙂
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