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Martin mags produces and sells industry magazines. The following budgeted information is available for the year ending 3 December 2006.
Budget Flexed Actual
Sales units. 120,000. 100,000. 100,000
$000. $000. $000
Sales revenue. 1,200. 1,000. 995
Variable printing. 360. 300. 280
Costs
Variable prod. 60. 50. 56
Costs.
Fixed prod cost. 300. 300. 290
Fixed admin cost. 360. 360. 364Profit/loss. 120. (10). 5
What are the total expenditure and volume variance?
Exams kit answer = $15,000f. $130,000 adverseSir I can’t figure out how expenditure variance is being calculated in here? Also sir when we are calculating volume variance, we are calculating the diff between budgeted and flexed, shouldn’t it be flexed and actual? Because flexed is based on actual activity and could tell us better of what the amount should’ve been and how much it’s actually incurred?
The total overall variance is the different between the actual profit of 5,000 and the budgeted profit of 120,000. So a total variance of 115,000 adverse.
This is analysed into the variance due to the change in volume and the variance due to the change in expense.
The total volume variance is the difference between the flexed profit of (10,000) and the budgeted profit of 120,000. So a difference of 130,000 adverse.
The total expenditure variance is the difference between the actual profit of 5,000 and the flexed profit of (10,000) so a difference of 15,000 favourable.
Sir correct me if I’m wrong, i just want to grasp the logic, like if total material variance would be adverse, obviously it would be cause either price or usage variance one of them is favourable and the other adverse because of one, it’s the same thing here just because total variance is adverse which is why we got volume variance as adverse and expenditure the opposite, but the only thing here I don’t understand is, when i find the difference between budget and flexed units for volume it’s 20,000 adverse and multiplying it with contribution per unit i get that, but for expenditure you’re adding flexed and actual profit, though flexed profit is shown negative and actual profit positive?
The question is not asking for the analysis of the individual variances.
The variances in total explain the difference between the budgeted profit and the actual profit.
Here, the selling price per unit is not changing, so there is no sales price variance.
Therefore the only reasons for the actual profit being different from the budgeted profit are partly because they sold more (the volume variance) and this is the difference between the flexed profit and the budgeted profit, and partly because the expenses were different from standard (the expense variance).
To find the different between a positive and a negative number, you add the two together. The difference between minus 10 and plus 5 is 15 (this is arithmetic, not a variances technique).
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