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A company has recorded the following variances for a period:
sales volume variance 10,000$ Adverse.
sales price variance 5,000$ Favourable.
total cost variance 12,000$ Adverse.
standard profit on actual sales for the period was 120,000$.what was the fixed budget profit for the period?
The answer is:
I am wondering why did we ignore the other two variances?
It is because the $120,000 is not the actual profit but is the standard profit on actual sales.
I don’t know whether or not you have watched my free lectures, but if you do you will see that the sales volume variance is the difference between actual sales at standard profit and budgeted sales.
The other two variances explain why the actual profit is different from the standard profit.