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Dear Sir,
Could you please explain the answer for the following question.
38. A company uses a standard marginal costing system. The following figures are available for the last accounting period in which the actual profit was $124,000
What was the standard profit for the actual sales in the last accounting period?
$134,000
$114,000
$123,000
$125,000
For the benefit of anyone else looking at this question, the following addition information was given:
Sales volume contribution variance 9,000 (F)
Sales price variance 8,000 (A)
Total variable cost variance 13,000 (F)
Fixed cost expenditure variance 4,000 (A)We are given the actual profit, and so we need to use the variances ‘backwards’ to find the standard profit (for example, since the fixed cost variance is 4,000 (A), the actual profit will be 4,000 less than the standard profit and so the standard profit would be 4,000 more than the actual profit).
So…..the standard profit is 124,000 + 8,000 – 13,000 + 4,000 = 123,000.
(The sales volume variance is not relevant – this is the difference between the original budget profit and the standard profit for the actual sales. We are not asked for the original budget profit – we are asked for the standard profit for the actual sales.)
Thank you Sir and sorry that I missed to post the additional information of this question.
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