July 3, 2017 at 1:48 pm #394610chetanMember
1) A company uses standard marginal costing. Last month the standard contribution on actual sales was $10000 and the following variances arose:
Total variable costs variance 2000 Adverse
Sales price variance 500 Favourable
Sales volume contribution variance 1000 Adverse
What was the actual contribution for last month?
Solution: Standard Contribution 10000
Sales price variance 500
Variable cost variance (2000)
Actual contribution = $8500
2) The Budgeted contribution for HMF Co for june was $290000. The following variances occurred during the month.
Fixed overhead expenditure variance 6475 Favourable
Total direct labour variance 11323 Favourable
Total variable overhead variance 21665 Adverse
Selling price variance 21875 Favourable
Fixed overhead volume variance 12500 Adverse
Sales volume variance 36250 Adverse
Total direct materials variance 6335 Adverse
What was the actual contribution for the month?
STANDARD MARGINAL COSTING RECONCILIATION:
Original budgeted contribution 290000
sales volume variance (36250)
Standard contribution from actual sales 253750
selling price variance 21875
Total direct material variance (6335)
Total direct labour variance 11323
Total variable overhead variance (21665)
Actual contribution = $258948
Hello sir, both questions are asking for actual contribution. i worked the first 1 and got the answer.. i did the same for the 2nd question but did not get the answer. why in the first question we shouldnt use sales volume and in the 2nd question we should use it?
July 3, 2017 at 4:58 pm #394638
The sales volume variance is the difference between the budgeted and the actual sales, at standard cost.
In the second question you are given budgeted sales and so the sales volume variance is relevant.
in the first question you are given the standard profit on actual sales and so the sale volume variance is not relevant.
September 15, 2020 at 4:05 pm #585760Adit227Participant
sir, if in the first question mentioned above there is (favourable) total fixed cost variance in place of sales price variance, will we add it or not to find sales price price variance to find the actual contribution or not? and why?
September 16, 2020 at 9:03 am #585799
I do not understand what you are asking. Fixed cost variances do not affect the contribution and have no connection with sales price variances.
Have you watched my free lectures on variance analysis?
September 22, 2020 at 2:11 pm #586399
Hello Mr Moffat, I have a question:
A firm uses marginal costing and the actual net profit for the period was $30,000, the following are the variances for the period.
Material $300 Adverse
Labour $800 Favorable
Overheard $550 Adverse
Sales price variance $400 Favorable
Sales volume contribution $800 Favorable
What is the budgeted net profit of the period?
September 22, 2020 at 4:48 pm #586407
There is no point in simply typing out a test question and expecting 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 and then I will explain.
Have you not watched my free lectures on variances? If you had then you would know that the whole point of variance analysis is that the variances explain the difference between the actual and the budgeted profit.
The lectures are a complete free course and cover everything needed to be able to pass the exam well.
September 22, 2020 at 5:29 pm #586414
Thank you, I have seen your videos but my confusion is the budgeted net profit which I’m confusing for budgeted contribution, I don’t know if they mean the same because I know absorption costing deals with budgeted profit while marginal deal with contribution. Thank you
September 23, 2020 at 8:45 am #586446
Contribution = sales less variable costs.
Profit = sales less variable and fixed costs ( = contribution – fixed costs )
The question. you have typed out makes no mention of fixed costs and therefore the profit will be the same as the contribution.
(If you are at all unsure about contribution and profit, then revise by watching the free Paper MA (was F3) lectures on absorption and marginal costing.)
September 23, 2020 at 11:05 pm #586498
Thank you Sir, understood.
September 24, 2020 at 9:12 am #586524
You are welcome 🙂
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