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- November 25, 2020 at 7:17 pm #596456abdiaziz1
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Thank you very much for your assistance.

A company uses a standard absorption costing system the following figures are available for the last accounting period in which the actual profits was 108000

Sales volume Profit variance 6000 A

sales price variance 5000 F

total variable cost variance 7000 A

Fixed cost expenditure Variance 3000 F

Fixed cost volume variance 2000 AWhat was the standard profit for the actual sales in the last accounting period.

101000

107000

109000

115000my answer was 101000 the book answer was 109000

My question was I have gone through the variance analysis proper I have no problem when either the information is presented in a form of operating statement or in any form that is different from the above extract. I have also done the operating statement that was tested in the specimen exam and got it right. I have also done a full flexed budget and calculated the variance as per Marginal costing and put the figures in operating statement for the worked example in the Variance analysis chapter without any problem . but when the information is asked in the form of the above extract I am adding or subtracting the figures given in the actual question wrongly and I am ending up with different answer. I am worried if in the exam few questions in the multiple choice section are asked in the form of the above extracts to loose substantial amount of marks. is there any sort of rule which determines what to add or subtract in order to get the exact figure. Many thanks I appreciate for your help.

November 26, 2020 at 8:53 am #596492John MoffatKeymaster- Topics: 56
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If a variance is favourable then the actual profit is more than the standard profit, so the standard profit must be less than the actual profit.

If a variance is adverse then the actual profit is less than the standard profit, so the standard profit must be more than the actual profit.

November 26, 2020 at 9:20 am #596504abdiaziz1- Topics: 14
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thank you very much.

November 26, 2020 at 10:56 am #596516abdiaziz1- Topics: 14
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Just to be clear with the above question.

hence the question asks the std profit it will be based on the std Absorption.

so sales volume profit variance is irrelevant because the budget was already flexed.

sales price variance is irrelevant.

total variable cost is irrelevant.therefore we have only got left with the last two variances and this will give a difference of 1000 F.

so Applying the rule the profit will increase by 1000 Giving 109000. can you please Advice on what I have done. Many thanks.November 26, 2020 at 12:37 pm #596532John MoffatKeymaster- Topics: 56
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The sales volume variance is indeed irrelevant.

However the other variances are all relevant because changes in the selling price and in the costs will change the profit from standard profit.

November 26, 2020 at 1:38 pm #596550abdiaziz1- Topics: 14
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thank you very much I think I got it now. it would be 108000+2000-3000+7000-5000 which gives the 109000. Sorry for keeping on and on I hate to assume that I have understood something without really understanding. many thanks. I appreciate for your help.

November 26, 2020 at 3:19 pm #596571John MoffatKeymaster- Topics: 56
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You are welcome 🙂

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