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Study hub variance question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Study hub variance question

  • This topic has 7 replies, 2 voices, and was last updated 9 months ago by John Moffat.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • September 16, 2024 at 8:35 pm #711520
    Rajshekharrsf
    Participant
    • Topics: 52
    • Replies: 81
    • ☆☆

    A company uses production labour hours to absorb its fixed production overheads. A strike by its workforce results in a loss of 30% of the period’s budgeted production labour hours.

    22. Which of the following variances will occur as a result of the loss in production labour hours?

    A.Adverse fixed overhead capacity variance
    B.Adverse fixed overhead efficiency variance
    C.Adverse direct labour efficiency variance
    D.Adverse direct labour rate variance
    The correct answer is A.

    A strike will reduce operating capacity so fewer than budgeted hours will be worked. When an absorption costing system is used this will result in an adverse fixed overhead capacity variance.

    if 30 percent hrs were lost on actual labor hrs, wouldn’t it cause an adverse labor variance for A,B and C and not just A?

    September 16, 2024 at 8:44 pm #711521
    Rajshekharrsf
    Participant
    • Topics: 52
    • Replies: 81
    • ☆☆

    A company uses marginal costing. Last month the standard contribution on actual sales was $40,000 and the following variances arose:

    Sales price variance $1,000 favourable
    Sales volume variance $3,500 adverse
    Fixed overhead expenditure variance $2,000 adverse
    There were no variable cost variances last month.

    37. What was the actual contribution for last month? (Answer in $)

    The correct answer is $41000.

    Actual contribution for last month was $41000.

    $
    Standard contribution on actual sales 40,000
    Add: Favourable sales price variance 1,000
    Actual contribution 41,000

    Under marginal costing system, as per study hub, we are to only use only fixed production expenditure variance and not volume variance. So, the answer should be, 40000+1000-2000 = $39000.

    Why have they not deducted 2000A from the contribution?

    September 17, 2024 at 7:28 am #711535
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    First question:

    Having fewer hours available does not affect how efficiently they use those hours or the rate of pay for those hours.

    (It will mean they will produce and sell less units than budgeted, but this is dealt with by the sales volume variance.)

    September 17, 2024 at 7:29 am #711536
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    Second question:

    They are using marginal costing and the contribution is before any fixed overheads.

    September 18, 2024 at 8:39 am #711550
    Rajshekharrsf
    Participant
    • Topics: 52
    • Replies: 81
    • ☆☆

    To calculate the actual contribution during a budget period, we will never deduct the fixed overhead expenditure variance from the standard contribution on actual sales. Is this correct?

    September 19, 2024 at 7:36 am #711565
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    The contribution is always the profit before fixed overheads and so the fixed overhead variances are not relevant.

    September 22, 2024 at 12:29 pm #711632
    Rajshekharrsf
    Participant
    • Topics: 52
    • Replies: 81
    • ☆☆

    Thank you! all doubts cleared.

    September 22, 2024 at 6:57 pm #711641
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 8 posts - 1 through 8 (of 8 total)
  • The topic ‘Study hub variance question’ is closed to new replies.

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