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A company has recorded the following variances for a period:
Sales volume variance
$10,000 adverse
Sales price variance
$5,000 favourable
Total cost variance
$12,000 adverseStandard profit on actual sales for the period was $120,000.
What was the fixed budget profit for the period?Dear Sir,
Please explain above question.
Thank you very much..
If the standard profit on actual sales is 120,000, then the only reason that this is different from the original (fixed) budget profit is because of the sales volume variance.
Since the sales volume variance is 10000 adverse, the original budget profit must have been $130,000.
(The other variances are not relevant – they explain why the actual profit will be different from the standard profit on actual sales.)
If actual profit is given instead of standard profit in above question. Does total cost variance include?
Yes – the total cost variance would be included.
Have you watched my free lectures on variance analysis? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
I will rewatch it
But I always find difficult to solve that type of question of variance topic I don’t understand which cost is included and which one excludedI really struggle with this variance topic and was hoping you could help
question from the bpp kit
At budget, it takes $110,000 to produce 2200 units
At actual, it takes $110,000 to produce 2000 unitsThey ask for the total direct material variance
The answer simply takes the expenditure variance.
I thought the total material variance would include both the expenditure and the usage variance?
The total variance is indeed the sum of the expenditure and usage variances.
In this question it is not possible to analyse the two because we do not know how many kg were needed for the production or what the standard cost per kg was. The reason for them spending more than they should have will be because of both factors.
Have you watched my free lectures on variances because I start by calculating the total material variance and only later analyse it into expenditure and usage,
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