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Can you please explain me the following question??? The correct answer is $130.000, but I really don’t understand why. Why there are other variances not taken into account?
A company has recorded the following variances for a period:
Sales volume variance
$10,000 adverseSales price variance
$5,000 favourableTotal cost variance
$12,000 adverseStandard profit on actual sales for the period was $120,000.
What was the fixed budget profit for the period?
$137,000
$103,000
$110,000
$130,000The question tells you that the standard profit on ACTUAL sales is 120,000.
It does not ask you what the actual profit is, but what the budgeted profit was.
The difference between the budget profit and the standard profit on actual sales is simply the sales volume variance.
(Please do watch our lectures on variances. Our lectures are a complete course for Paper F2 and cover everything you need to be able to pass the exam well.)
Thank you very much for the answer, I have watched all your lectures some time ago, just I have to refresh everything again and variances are quite a tricky topic.
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