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A company uses standard marginal costing. Its budgeted contribution for the last month was $20,000. The
actual contribution for the month was $15,000, and the following variances have been calculated:
Sales volume contribution variance $5,000 adverse
Sales price variance $9,000 favourable
Fixed overhead expenditure variance $3,000 favourableWhat was the total variable cost variance?
A $9,000 adverse
B $9,000 favourable
C $12,000 adverse
D $12,000 favourableThe correct answer is A. Could you please explain to me the relationship between variable cost variance and sales price/volume variance?
There is no relationship!!
The variances in total (with the exception of the fixed overhead variance, given that this question is looking at contribution) explain the difference between the actual contribution and the budget contribution. The variable cost variance is not given and so must be the missing figure that makes the budget and actual figures reconcile.
I really do suggest that you watch my free lectures on variance analysis. You can always expect there to be a lot of questions in the exam asking about variances.
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