You are on page 1of 12

# ACCA F2 Management Accounting

Sales Variances

Example 1: A company is reviewing actual performance to budget to see where there are differences. The following standard information is relevant: \$ per unit Selling price Prime Costs Variable production overheads Fixed production overheads Fixed selling costs 50 20 11 5 1

Budgeted sales units were 3,000. Actual units sold in the period were 3,500 at a price of \$46 per unit. What was the sales volume variance and sales price variance using marginal costing? What was the sales volume variance and sales price variance using absorption costing? What was the sales volume variance and sales price variance using marginal costing? Sales price variances ASP x AO ~ SSP x AO ~ 46 x 3,500 50 x 3,500 = = = Sales contribution volume variances AO x SC ~ BO x SC ~ 3,500 x 19 3,000 x 19 = = = Sales variances AO x AC ~ BO x SC ~ 3,500 x 15 3,000 x 19 = = = 52,500 57,000 4,500 (A) 66,500 57,000 9,500 (F) 161,000 175,000 14,000 (A)

What was the sales volume variance and sales price variance using absorption costing? Sales price variances ASP x AO ~ SSP x AO ~ 46 x 3,500 50 x 3,500 = = = Sales margin volume variances AO x S Profit ~ BO x S Profit ~ 3,500 x 14 3,000 x 14 = = = Sales variances AO x AC ~ BO x SC ~ 3,500 x 10 3,000 x 14 = = = 35,000 42,000 7,000 (A) 49,000 42,000 7,000 (F) 161,000 175,000 14,000 (A)

## Standard Costing: Reconciliation of Budgeted Profits and Actual Profits Example 2:

(a)

Standard costing variances Direct material Actual usage at actual cost Actual usage at standard cost Standard usage at standard cost Direct labour Actual hours at actual rate Actual hours at standard rate Standard hours at standard rate Variable overhead Actual hours at actual rate Actual hours at standard rate Standard hours at standard rate Fixed overhead Actual overhead Expenditure Budgeted overhead Actual hours at standard rate per hour Standard overhead for actual production Sales volume Budgeted sales units at Standard profit margin Actual sales units at Standard profit margin Sales price Actual sales at standard price Actual sales at actual price 1,200 units x \$250 1,200 units x \$240 = = \$300,000 \$12,000 \$288,000 Adv 1,000 units x \$10800 1,200 units x \$10800 = = \$108,000 \$21,600 \$129,600 Fav 1,000 units x 4 hrs x \$1000 Capacity 5,000 hours x \$1000 Efficiency 1,300 units x 4 hrs x \$1000 = = = = \$54,600 \$14,600 \$40,000 \$10,000 \$50,000 \$2,000 \$52,000 Fav Fav Adv 5,000 hrs x \$1510 Expenditure 5,000 hrs x \$1500 Efficiency 1,300 units x 4 hrs x \$1500 = = = \$75,500 \$500 \$75,000 \$3,000 \$78,000 Fav Adv 5,000 hrs x \$600 Rate 5,000 hrs x \$600 Efficiency 1,300 units x 4 hrs x \$600 = = = \$30,000 \$0 \$30,000 \$1,200 \$31,200 Fav 16,000m x \$140 Price 16,000m x \$150 Usage 1,300 units x 12m x \$150 = = = \$22,400 \$1,600 \$24,000 \$600 \$23,400 Adv Fav

(b)

Differences between standard absorption and standard marginal costing: Sales volume variance This variance measures the effect on profit of selling more (or less) units than budgeted. Under absorption costing this is calculated at standard profit per unit. Note that in calculating standard profit per unit all costs, both fixed and variable, are charged against standard selling price. Under standard marginal costing the variance is calculated at standard contribution per unit. In calculating standard contribution per unit only

## ACCA F2 Management Accounting

standard variable costs are charged against standard selling price. Fixed overhead variances The expenditure variance (the difference between actual and budgeted expenditure) is the same under both approaches. Under absorption costing fixed overheads are charged to individual units of production via an overhead absorption rate. If production volume differs from that budgeted this can result in under or over absorption of overhead and resultant adverse or favourable volume variance. In turn this volume variance can be subdivided into capacity and efficiency variances. Under marginal costing, fixed overheads are not charged to individual units of production and thus no under or over absorption, or volume variance, occurs. Stock valuation and its effect upon profit The profit figures under the two systems may be different due to the different costing principles involved. Under absorption costing finished goods stock is valued at full production cost, which includes both fixed and variable production cost. Under a marginal costing system finished goods stock is valued at variable production cost only. This will result in differences in stock valuations and possibly differences in cost of sales figures. In a period when production is greater than sales (as in the most recent month) absorption costing will show the higher profit figure as a proportion of the current periods fixed production costs will be absorbed into units included in closing stock and be carried forward into the next period. This will result in absorption costing showing a lower cost of sales and a higher profit than marginal costing.

## ACCA F2 Management Accounting

Question 3: (i) Budgeted sales and production units Budgeted profit 56,700 BO = = = = (ii) Actual sales and production units FOH volume variance 2,088 AO Actual production units Sales volume variance 2,646 AO Actual sales units (iii) Actual selling price Sales price variance (1,413) Actual SP = = = = (Actual SP Standard SP) AO (Actual SP 7.70) 28,260 7.70 - 1,413/ 28,260 \$7.75 = = = = = = = = (AO BO) FOH/u (AO 27,000) 2.40 27,000 + 2,088/ 2.40 27,870 units (AO BO) Standard profit/ u (AO 27,000) 2.10 27,000 + 2,646/ 2.10 28,260 units BO x Standard profit BO x 2.10 56,700 2.10 27,000 units

## ACCA F2 Management Accounting

Question 4: Direct materials usage variance AQ x SP ~ SQ x AO x SP ~ 8 x 2,700 x 5 = = = Direct materials price variance (purchases) AP x AQ ~ SP x AQ ~ 5 x 19,748 = = = Direct labour rate variance AR x AHr ~ SR x AHr ~ 7 x 14,100 = = = Direct labour efficiency variance AHr x SR ~ SHr x AO x SR ~ 5 x 2,700 x 7 = = = Fixed overhead expenditure variance AFOH ~ BFOH ~ 25 x 2,600 = = = Fixed overhead volume variance AO x FOAR/u ~ BO x FOAR/u ~ 2,700 x 25 = = = 67,500 65,000 2,500 (F) 72,490 65,000 7,490 (A) 98,700 94,500 4,200 (A) 101,520 98,700 2,820 (A) 118,488 98,740 19,748 (A) 106,075 108,000 1,925 (F)

## ACCA F2 Management Accounting

Question 5: (a) Calculate the standard cost of a single metal container. Material A Labour Variable overheads Fixed overheads (6 x 5.00) (2 x 4.50) (2 x 7.50) (2 x 12.00) 30.00 9.00 15.00 24.00 78.00 (b) Cost variances for May 2000; AP x AQ ~ SP x AQ ~ 5 x 3,550 = = = Direct materials usage variance AQ x SP ~ SQ x AO x SP ~ 3,550 x 5 6 x 600 x 5 = = = Direct labour rate variance AR x AHr ~ SR x AHr ~ 4.50 x 1,320 = = = Direct labour efficiency variance AHr x SR ~ SHr x AO x SR ~ 2 x 600 x 4.50 = = = Variable overhead expenditure variance AVOH ~ VOAR x Ahr ~ 7.50 x 1,320 = = = Variable overhead efficiency variance Ahr x VOAR ~ Shr x AO x VOAR ~ 2 x 600 x 7.50 = = = Fixed overhead expenditure variance AFOH ~ BFOH ~ = = = Fixed overhead volume variance Shr x AO x FOAR ~ Bhr x FOAR ~ 2 x 600 x 12 15,000/12 x 12 = = = 14,400 15,000 600 (F) 15,610 15,000 610 (A) 9,900 9,000 900 (A) 9,400 9,900 500 (F) 5,940 5,400 540 (A) 5,610 5,940 330 (F) 17,750 18,000 250 (F) 18,290 17,750 540 (A)

## ACCA F2 Management Accounting

Question 6: (a) Operating statement Budgeted Profit Sales margin volume variance Standard Profit for AO Adjustments: Sales price variance Material price variance Material usage variance Labour rate variance Labour efficiency variance VOH expenditure variance FOH expenditure variance FOH efficiency variance FOH capacity variance Net variances Actual Profit 588,500 60 x 9,500 120,000 3 x 37,000 (37,000 4 x 9,500) 3 200,000 4 x 49,000 (49,000 5 x 9,500) 4 47,000 5 x 9,500 145,000 3 x 5 x 10,000 (49,000 5 x 9,500) 3 (49,000 50,000) 3 18,500 9,000 3,000 4,000 6,000 500 5,000 4,500 3,000 500 76,500 F A F A A F F A A F (10,000 x 8) (9,500 10,000) 8 (9,500 x 8) 80,000 4,000 76,000 A

## ACCA F2 Management Accounting

Short Questions
Q1: Direct materials usage variance AQ x SP ~ SQ x AO x SP ~ 3,850 x 5.00 2 x 2,000 x 5.00 = = = Direct materials price variance (production) AP x AQ ~ SP x AQ ~ 5.00 x 3,850 = = = Direct materials cost variance AP x AQ ~ SQ x AO x SP ~ 2 x 2,000 x 5.00 = 22,715 20,000 2,715 (A) Q2: Direct materials price variance (production) AP x AQ ~ SP x AQ ~ 3.00 x 5,000 = = = Direct materials usage variance AQ x SP ~ SQ x AO x SP ~ 5,000 x 3.00 4 x 1,270 x 3 = = = Direct materials cost variance AP x AQ ~ SQ x AO x SP ~ 4 x 1,270 x 3 = 16,000 15,240 760 (A) Q3: Direct materials price variance (production) AP x AQ ~ SP x AQ ~ 2.50 x 53,000 = = = Direct materials usage variance AQ x SP ~ SQ x AO x SP ~ 53,000 x 2.50 2 x 27,000 x 2.50 = = = Direct materials cost variance AP x AQ ~ SQ x AO x SP ~ 2 x 27,000 x 2.50 = 136,000 135,000 1,000 (A) 132,500 135,000 2,500 (F) 136,000 132,500 3,500 (A) 15,000 15,240 240 (F) 16,000 15,000 1,000 (A) 22,715 19,250 3,465 (A) 19,250 20,000 750 (F)

## ACCA F2 Management Accounting

Q4:

Direct materials price variance (production) AP x AQ ~ SP x AQ ~ 2.60 x 12,000 2.50 x 12,000 = = = Direct materials usage variance AQ x SP ~ SQ x AO x SP ~ 12,000 x 2.50 10.5 x AO x 2.50 = = = AO = 1,212 Direct materials cost variance AP x AQ ~ SQ x AO x SP ~ 2.60 x 12,000 10.5 x 1,212 x 2.50 = = 31,200 31,815 615 (F) 30,000 31,815 1,815 (F) 31,200 30,000 1,200 (A)

Q5:

Direct materials cost variance AP x AQ ~ SQ x AO x SP ~ 42,000/ 7,000 x 7,200 = 42,912 43,200 288 (F) Answer: A

Q6:

Direct labour rate variance AR x AHr ~ SR x AHr ~ 6.40 x 11,700 = = = Direct labour efficiency variance AHr x SR ~ SHr x AO x SR ~ 11,700 x 6.40 4.5 x 2,300 x 6.40 = = = Direct labour cost variance AR x AHr ~ SR x Shr x AO ~ = 64,150 66,240 2,090 (F) 74,880 66,240 8,640 (A) 64,150 74,880 10,730 (F)

Q7:

Direct labour cost variance AR x AHr ~ SR x Shr x AO ~ 1.60 x 2 x 38,000 = 136,500 121,600 14,900 (A) Direct labour rate variance AR x AHr ~ SR x AHr ~ 1.60 x 78,000 = = = Direct labour efficiency variance AHr x SR ~ SHr x AO x SR ~ 78,000 x 1.60 2 x 38,000 x 1.60 = = = 124,800 121,600 3,200 (A) 136,500 124,800 11,700 (A)

## ACCA F2 Management Accounting

Q8:

Direct labour efficiency variance AHr x SR ~ SHr x AO x SR ~ (11 x 30 x 4) x 11.38/0.5 0.5 x 2,850 x 11.38/0.5 = = = Answer: C 30,043.20 32,433.00 2,389.80 (F)

Q9:

Direct labour rate variance AR x AHr ~ SR x AHr ~ 21.96/2.4 x 6,760 = = = 62,579.60 61,854.00 743.60 (A)

Q10:

Variable overhead expenditure variance AVOH ~ VOAR x AHr ~ = = = Variable overhead efficiency variance AHr x VOAR ~ SHr x AO x VOAR ~ = = = Variable overhead cost variance AVOH ~ VOAR x Shr x AO ~ = 12,400 13,515 1,115 (F) 12,720 13,515 795 (F) 12,400 12,720 320 (F)

Q11:

Variable overhead expenditure variance AVOH ~ VOAR x AHr ~ 0.60 x 8,640 = = = Variable overhead efficiency variance AHr x VOAR ~ SHr x AO x VOAR ~ 2 x 4,800 x 0.60 = = = Variable overhead cost variance AVOH ~ VOAR x Shr x AO ~ = 8,330 5,760 2,570 (A) 5,184 5,760 576 (F) 8,330 5,184 3,146 (A)

## ACCA F2 Management Accounting

Q12: A:

Variable overhead expenditure variance AVOH ~ VOAR x AHr ~ 2 x 9,800 = = = 23,520 19,600 3,920 (A) 7,800 9,750 1,950 (F) 1,970 (A)

B: ~

AVOH VOAR x AHr Total Variable overhead efficiency variance ~ 1.50 x 6,500

= = =

A: ~

## AHr x VOAR SHr x AO x VOAR ~ 20 x 500 x 2.00

= = =

19,600 20,000 400 (F) 9,750 9,000 750 (A) 350 (A)

B: ~

= = =

B: ~

= = =

## 7,800 9,000 1,200 (F) 2,320 (A)

Total Q13: Fixed overhead expenditure variance AFOH ~ BFOH ~ 2,000 x 3 x 6 = = = Q14: Fixed overhead volume variance SHr for AO x FOAR ~ BHr x FOAR ~ 3 x 2,200 x 6 = = = Fixed overhead cost variance AFOH ~ FOAR x SHr x AO ~ 6 x 3 x 2,200 = = = Q15: Fixed overhead volume variance AO x FOAR/ u ~ BO x FOAR/ u ~ AO x 20 600 x 20 = = =

12,000 12,000 -

## ACCA F2 Management Accounting

Q16:

Fixed overhead volume variance AO x FOAR/ u ~ BO x FOAR/ u ~ 19,500 x 5 20,000 x 5 = = = 97,500 100,000 2,500 (F)

FOH Capacity variance + FOH Efficiency variance Q17: Fixed overhead expenditure variance AFOH ~ BFOH ~ 36,000/10 x 100

= = =

## 396,000 360,000 36,000 (A)

Actual expenditure on fixed overheads are: \$36,000 Q18: What fixed cost variance is measured by the following formula? (Budgeted fixed overheads actual fixed overheads incurred) A Expenditure B Capacity C Efficiency D Volume