variance

This topic has 6 replies, 2 voices, and was last updated 10 months ago by John Moffat.

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October 11, 2021 at 9:57 am #637442
johnbriane
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sir this is a question from lsbf revision kit
please help us to find the cost per unit based on absorption costing
thank you

although the answer is B i do not understand it how .

A product has a standard selling price of $80 per unit and a standard contribution of $18 per unit . in the last period the sales volume contribution variance was $3,600 adverse . the management accountant calculates that if the company had used standard absorption costing the sales volume profit variance would have been $2000 adverse .

What is the standard absorption cost per unit ?
A. $62
B. $70
C. $8
D. $52
October 11, 2021 at 3:42 pm #637459
John Moffat
Keymaster
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The sales volume must have been lower than budgeted by 3,600/18 = 200 units.

Therefore the standard profit using absorption costing must be $2,000 / 200 = $10 per unit.

Therefore the standard absorption cost must be 80 – 10 = $70 per unit.
October 11, 2021 at 6:22 pm #637472
johnbriane
- Topics: 150
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Sir why don’t we divide
$2000/400 units ?

Because 400 is the budgeted units
October 12, 2021 at 3:41 am #637504
johnbriane
- Topics: 150
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And then
Selling price less variable cost is contribution
So
$80
Less the vc
Is $18
Which is the contribution

So
Does that mean $62 is the variable cost ?
October 12, 2021 at 7:33 am #637528
John Moffat
Keymaster
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Nowhere in the question does it say that 400 is the budgeted units.

The standard variable cost is indeed $62.

However the question asks for the standard absorption cost and I have explained how it comes to $70.
October 12, 2021 at 9:48 am #637532
johnbriane
- Topics: 150
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If sales volume is 200 lower than the budgeted then
Actual units could be 400 units right sir

Can we take that way or
October 12, 2021 at 3:40 pm #637574
John Moffat
Keymaster
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All we know (and all we need to know) is that the actual units are 200 less than the budgeted units.

We do not know (and do not need to know) either the budgeted units or the actual units, and I have no idea at all where you are getting 400 from.
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