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A company uses standard marginal costing. Last month the standard contribution on actual
sales was $25,000 and the following variances arose:
Total variable costs variance $3,000 adverse
Sales price variance $1,000 favourable
Sales volume contribution variance $1,500 adverse
What was the actual contribution for last month?Answer
$23,000
Standard contribution on actual sales $25,000
Less adverse total variable costs variance ($3,000) reduced contribution
Add favourable sales price variance $1,000 increase contribution
Actual Contribution $23,000
Standard contribution on actual sales has been obtained by adjusting the budgeted
contribution by the sales volume contribution variance. Therefore this variance should have
been ignored in answering the specific question set.I am confused by the explanation on why we ignore the sales volume contribution variance.
Can you please explain it in other words?The sales volume variance is the difference between the budgeted contribution and the standard contribution on the actual sales.
Because this question tells you the standard contribution on the actual sales (and not the budgeted contribution) it is not relevant.
The only reasons for the actual contribution being different from the standard contribution on the actual sales are changes in the selling price and changes in the costs.
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