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The following question is taken from the July to December 2017 exam period.
A company uses standard marginal costing to monitor performance. The budgeted profit and budgeted fixed overhead for a month were $25000 and $12000 respectively. In the month the following variance occurred:
Sales volume contribution $1000 Adverse
Sales price $2000 favourable
Total variable costs $4000 Adverse
Fixed production overhead expenditure $500 Adverse
What was the actual profit for the month?
Sir my question is why they didn’t deduct budgeted fixed overhead from the actual contribution?
The budgeted profit will already be after charging the budgeted fixed overheads, so it is only the variance that needs adjusting for.