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Martin mags produces and sells industry magazines. The following budgeted information is available for the year ending 3 December 2006.
Budget Flexed Actual
Sales units. 120,000. 100,000. 100,000
$000. $000. $000
Sales revenue. 1,200. 1,000. 995
Variable printing. 360. 300. 280
Costs
Variable prod. 60. 50. 56
Costs.
Fixed prod cost. 300. 300. 290
Fixed admin cost. 360. 360. 364Profit/loss. 120. (10). 5
What are the total expenditure and volume variance?
Exams kit answer = $15,000f. $130,000 adversePlease kindly asssit on this .
Writing my exams on Monday June 5. 2017If you have typed the question exactly as it appear in the your exam kit, then it is very poorly worded.
However, the budget profit is 120,000, and the flexed profit is (10,000). The difference of 130,000 (adverse) is the volume variance.
The actual profit is 5,000 and the flexed profit is (10,000). The difference of 15,000 (favourable) is the expenditure variance.
Thank you Sir for your reply but from your lecture volume variance is the difference between the Budgeted units and Flexed units multiplied by the standard profit. But here how do the book arrive at such answers such 15,000 (F) and 130,000(Advance) ?
But I have already answered you!
The statements have obviously been prepared using marginal costing (because the flexed budget keeps fixed overheads the same).
Therefore the volume variance is the difference between budgeted and flexed units at standard contribution.
The standard contribution is (1,200 – 360 – 60) / 120 = 6.50 per unit
The difference in units is 120000 – 100000 = 20.
Therefore the volume variance is 20,000 x $6.50 = 130,000However, given the way that the question was laid out, it was rather quicker to do what I wrote before!!!
To ask for the expenditure variance is extremely poorly worded in this example. They could not be wanting anything other than what I typed before.
Thank you very much sir , you are the best . I never taught about using the marginal costing since the flexed budegt keep fixed overhead costs Same.
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