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Variance analysis question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Variance analysis question

  • This topic has 5 replies, 3 voices, and was last updated 8 months ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • September 30, 2019 at 2:41 pm #547677
    greenapp
    Member
    • Topics: 21
    • Replies: 12
    • ☆

    Hi dear,

    Q1. The budgeted contribution HMF Co. for June was $290,000. The following variances occurred during the month.
                            
    Fixed overhead expenditure variance $6,475 F
    Total direct labor variance $11323 F
    Total variable overhead. Variance $21,665 A
    Selling price variance $21,875 F
    Fixed overhead volume variance $12,500 A
    Wales volume variance 36,250 A
    Total direct materials variance $6,335 A
    What was the actual contribution for the month?

    The answer is:
    Standard marginal costing reconciliation

    Original budgeted contribution $290,000
    Sales volume variance ( $36,250)
    ==========================
    Sales contribution from actual sales $353,750
    Selling price variance               $21,875
    ===========================
                                                  $275,625

    variable cost variances
    Total direct material variance.  ( $6,335)
    Total direct labour variance.      $11,323
    Total variable overhead variance ($21,665)
    ===========================
    Actual contribution.                 $ 258,948

    My question is : as my knowledge we should calculate only the variances which comparing between actual and budgeted, as it required by what they give us in question,

    So why we used also the other variances?

    Q2. A company uses a standard absorption costing system. The following figures are available for the last accounting period in which actual profit was $108,000.
    Sales volume profit variance $6,000 A
    Sales price variance $5,000 F
    Total variable cost variance $7,000 A
    Fixed cost expenditure variance $3,000 F
    Fixed cost volume variance $2,000 A

    What was the standard profit for actual sales in the last accounting period?
    The answer is:$109,000

                                                                  $
    Budgeted profit.                       not required
    Sales volume variance            not needed
    Standard profit on actual            109,000.   
    Sales price variance                    5,000 F
    Total variable cost variance        7,000 A
    Fixed cost expenditure variance 3,000 F
    Fixed cost volume variance         2,000 A
    Actual profit                                    108,000

    Why we don’t need the sales volume variance?
    & we calculate the variances of Fixed cost volume and expenditure variances despite of they are comparing between actual and budgeted  not standard cost per unit at actual units.?

    Q3. A company uses standard marginal costing. It’s budgeted contribution for the last month was $30,000. The actual contribution for the month was $20,000, and the following variances have been calculated :
    ~Sales volume contribution variance $5,000 A.
    ~Sales price variance $10,000 F.
    ~Fixed overhead expenditure variance $30,000 F.

    What was the total variable cost variance?
    The answer is: $15,000 A

    The total variance between budgeted contribution and actual contribution is $10,000 A ( $30,000_ $20,000). The sales volume and sales price variances sum to $5,000 F, so to balance, the variable cost variance must be $15,000 A.

    Explain for me please why we did not used in our calculation fixed overhead expenditure variance, but in other questions we did.? What is the logic?

    Q4. Crystal Co uses a standard absorption costing system.. The following figures are available for the last accounting period, for which standard profit was $135,000.
                                                               $
    Sales volume variance.                 15,000A
    Sales price variance.                      10,000F
    Total variable cost variance.         7,500A
    Fixed cost expenditure variance. 5,500F
    Fixed cost volume variance.         4,000A

    What was the actual profit for the period?

    The answer is.: $139,500

    A profit adjustment for the difference between budgeted and actual volumes is not required, and so the sales volume variance should be ignored.
    $135,000_ $4,000 +$5,500 _ $7,500 +10,500=$ 139,500.

    My question is, why sales volume is not uses in our calculation but the fixed cost and volume variances is uses in our calculation, as the three variances above is comparing actual and budgeted?

    22.14 Q5. A company uses a standard absorption costing system. Last month budgeted production was 8,000 units and the standard fixed production overhead cost was $15 per unit. Actual production last month was 8,500 units and the actual fixed production overhead cost was $17 per unit.

    What was the total adverse fixed production overhead variance for last month?

    The answer is $17,000.                              $
    8,500 units should have cost (×$15).    127,000
    but did cost (8,500 ×$17).                        144,500
                                                                         =17,000 A

    My question is in fixed OH variance we compare the actual with the budgeted
    But here they are comparing the actual cost with
    standard cost per unit for actual units produced. Why is that?

    Thanks.

    September 30, 2019 at 2:53 pm #547680
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    Q1. I don’t understand what you are asking. The variances (apart from the fixed overhead variance) analyse the difference between the budget and actual contribution.

    Q2. The question asks for the standard profit for the actual sales. It does not ask for the budget profit (if it did, then the sales volume variance would have been relevant).

    Q3. The fixed overheads are only relevant if we are looking at the profit. This question is looking at the difference between the budgeted and the actual contribution, and so fixed overheads are irrelevant.

    Q4. The question does not give you the budget profit. It gives the standard profit and so the sales volume variance is not relevant. See my answer to your Q2.

    Q5. We do not compare actual with budget for any of the cost variances!!! We compare actual cost with the standard cost for the actual production.

    I do suggest that you watch my free lectures on this. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.

    September 7, 2024 at 7:41 pm #710947
    bazo
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    hello , dear ,How is this a solution?

    global L td calculated the following variances
    tick the one that would have the least impact in increasing the profit from operations?

    variance tick
    sales revenue 150 f
    direct materials 20 f
    direct labour 76 f
    variable overheads 50 f

    September 8, 2024 at 9:02 am #710961
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    This is a strange question – where did you find it?

    Given that all of the variances are favourable, they will all result in an increased profit. Given that the direct materials variance is the smallest this one will result in the smallest impact on the profit.

    You obviously will have an answer in the same book in which you found the question – what does it say in the answer?

    September 16, 2024 at 8:31 am #711512
    Nguwar@
    Participant
    • Topics: 0
    • Replies: 4
    • ☆

    A firm uses standard absorption costing. The following variances occurred last period:

    $

    Sales volume profit 10,100 Adverse

    Sales price 4,200 Favourable

    Material price 2,300 Favourable

    Labour efficiency 500 Adverse

    Fixed overhead expenditure 1,800 Adverse

    Fixed overhead volume 2,000 Adverse

    Fixed overhead capacity 1,500 Favourable

    Fixed overhead efficiency 3,500 Adverse

    The standard profit from actual sales for the period was $240,000.

    What was the actual profit for the period?

    *
    2 points
    A. $232,100
    B. $240,200
    C. $230,100
    D. $242,200

    September 16, 2024 at 5:16 pm #711518
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    Please do not simply type out a full question and expect to be provided with a full answer. You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer that you are not clear about.

    I assume that you have watched my free lectures on variance analysis and therefore appreciate the the sales volume variance is irrelevant (because we are staying from the standard profit from actual sales rather than from the budgeted profit) and that the fixed overhead capacity and efficiency variances are irrelevant (because they are just the analysis of the fixed overhead value variance). The other variances are all relevant.

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