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my doubt for the below question is how will the below variances affect the standard profit inorder for us to arrive at the actual profit?
A company uses the
standard marginal costing
sysytem.The following
details are available for the
last accounting period in
which the profit was $ 124,000 sales volume contribution
variance $9,000(F)
sales price variance $8,
000(A)
total variable cost variance
$13,000(F) fixed cost expenditure
variance $4,000(A) what was the standard
profit for the actual sales in
the last accounting period?I got the answer as $134,000
The question asks for the standard profit for actual sales (not the budgeted profit). Therefore the sales volume variance is not relevant.
Standard profit – 8,000 (sales price) + 13,000 (var cost) – 4,000 (fix cost) = 124,000
So standard profit on actual sales = 123,000
Sir,
Kindly throw more light on how you arrived at the answer to above question. I am totally lost, although I have listen to your lecture, I still can not figure out the answer.
Thanks a lot.hello sir,
as it is marginal costing then while calculating std profit why have u taken the fixed cost? al i know is in marginal costing we dnt take fixed cost. may b i understood wrong. plz let me know.thank uOf course we always need to take fixed cost to calculate the profit.
Contribution is before fixed cost, but the profit is the contribution less the fixed cost.
With marginal costing there is only the fixed overhead expenditure variance that is relevant, whereas in absorption costing there is both the expenditure and the volume variance.
I really do suggest that you watch the free lectures on variance analysis where all this is explained.
thank u sir. i have one more question in cake manufacture what would b the cost per unit. the answer said it would b batch but how?
Farzana – although I will answer your question, please start a new thread when it is a different topic. This question has nothing at all to do with variance analysis.
With the cakes question, it very much depends on the situation (and it would be made clear in any exam question). If it is a company supplying batches of identical cakes to supermarkets, then batches would maybe a suitable cost unit.
On the other hand, if it is a shop selling different sizes/types of cakes then maybe one cake would be a more sensible cost unit.It depends on the situation – there is no ‘one’ rule. Any questions in the exam will, again, make the situation very clear.
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