acca f2 variances

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ACCA F2 Management Accounting 5 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 50 Prime Costs 20 Variable production overheads 11 Fixed production overheads 5 Fixed selling costs 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 46 x 3,500 = 161,000 ~ SSP x AO ~ 50 x 3,500 = 175,000 = 14,000 (A) Sales contribution volume variances AO x SC 3,500 x 19 = 66,500 ~ BO x SC ~ 3,000 x 19 = 57,000 = 9,500 (F) Sales variances AO x AC 3,500 x 15 = 52,500 ~ BO x SC ~ 3,000 x 19 = 57,000 = 4,500 (A) What was the sales volume variance and sales price variance using absorption costing? Sales price variances ASP x AO 46 x 3,500 = 161,000 ~ SSP x AO ~ 50 x 3,500 = 175,000 = 14,000 (A) Sales margin volume variances AO x S Profit 3,500 x 14 = 49,000 ~ BO x S Profit ~ 3,000 x 14 = 42,000 = 7,000 (F) Sales variances AO x AC 3,500 x 10 = 35,000 ~ BO x SC ~ 3,000 x 14 = 42,000 = 7,000 (A)

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Page 1: ACCA F2 Variances

ACCA F2 Management Accounting

5 S a l es V ar i an c e s

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 50

Prime Costs 20

Variable production overheads 11

Fixed production overheads 5

Fixed selling costs 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 46 x 3,500 = 161,000

~ SSP x AO ~ 50 x 3,500 = 175,000

= 14,000 (A)

Sales contribution volume variances

AO x SC 3,500 x 19 = 66,500

~ BO x SC ~ 3,000 x 19 = 57,000

= 9,500 (F)

Sales variances

AO x AC 3,500 x 15 = 52,500

~ BO x SC ~ 3,000 x 19 = 57,000

= 4,500 (A)

What was the sales volume variance and sales price variance using absorption costing?

Sales price variances

ASP x AO 46 x 3,500 = 161,000

~ SSP x AO ~ 50 x 3,500 = 175,000

= 14,000 (A)

Sales margin volume variances

AO x S Profit 3,500 x 14 = 49,000

~ BO x S Profit ~ 3,000 x 14 = 42,000

= 7,000 (F)

Sales variances

AO x AC 3,500 x 10 = 35,000

~ BO x SC ~ 3,000 x 14 = 42,000

= 7,000 (A)

Page 2: ACCA F2 Variances

ACCA F2 Management Accounting

Standard Costing: Reconciliation of Budgeted Profits and Actual Profits

Example 2:

(a) Standard costing variances

Direct material

Actual usage at actual cost 16,000m x $1·40 = $22,400

Price $1,600 Fav

Actual usage at standard cost 16,000m x $1·50 = $24,000

Usage $600 Adv

Standard usage at standard cost 1,300 units x 12m x $1·50 = $23,400

Direct labour

Actual hours at actual rate 5,000 hrs x $6·00 = $30,000

Rate $0

Actual hours at standard rate 5,000 hrs x $6·00 = $30,000

Efficiency $1,200 Fav

Standard hours at standard rate 1,300 units x 4 hrs x $6·00 = $31,200

Variable overhead

Actual hours at actual rate 5,000 hrs x $15·10 = $75,500

Expenditure $500 Adv

Actual hours at standard rate 5,000 hrs x $15·00 = $75,000

Efficiency $3,000 Fav

Standard hours at standard rate 1,300 units x 4 hrs x $15·00 = $78,000

Fixed overhead

Actual overhead = $54,600

Expenditure $14,600 Adv

Budgeted overhead 1,000 units x 4 hrs x $10·00 = $40,000

Capacity $10,000 Fav

Actual hours at standard rate per hour 5,000 hours x $10·00 = $50,000

Efficiency $2,000 Fav

Standard overhead for actual production 1,300 units x 4 hrs x $10·00 = $52,000

Sales volume

Budgeted sales units at Standard profit margin 1,000 units x $108·00 = $108,000

$21,600 Fav

Actual sales units at Standard profit margin 1,200 units x $108·00 = $129,600

Sales price

Actual sales at standard price 1,200 units x $250 = $300,000

$12,000 Adv

Actual sales at actual price 1,200 units x $240 = $288,000

(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

Page 3: ACCA F2 Variances

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 period’s 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.

Page 4: ACCA F2 Variances

ACCA F2 Management Accounting

Question 3:

(i) Budgeted sales and production units

Budgeted profit = BO x Standard profit

56,700 = BO x 2.10

BO = 56,700 2.10

= 27,000 units

(ii) Actual sales and production units

FOH volume variance = (AO – BO) FOH/u

2,088 = (AO – 27,000) 2.40

AO = 27,000 + 2,088/ 2.40

Actual production units = 27,870 units

Sales volume variance = (AO – BO) Standard profit/ u

2,646 = (AO – 27,000) 2.10

AO = 27,000 + 2,646/ 2.10

Actual sales units = 28,260 units

(iii) Actual selling price

Sales price variance = (Actual SP – Standard SP) AO

(1,413) = (Actual SP – 7.70) 28,260

Actual SP = 7.70 - 1,413/ 28,260

= $7.75

Page 5: ACCA F2 Variances

ACCA F2 Management Accounting

Question 4:

Direct materials usage variance

AQ x SP = 106,075

~ SQ x AO x SP ~ 8 x 2,700 x 5 = 108,000

= 1,925 (F)

Direct materials price variance (purchases)

AP x AQ = 118,488

~ SP x AQ ~ 5 x 19,748 = 98,740

= 19,748 (A)

Direct labour rate variance

AR x AHr = 101,520

~ SR x AHr ~ 7 x 14,100 = 98,700

= 2,820 (A)

Direct labour efficiency variance

AHr x SR = 98,700

~ SHr x AO x SR ~ 5 x 2,700 x 7 = 94,500

= 4,200 (A)

Fixed overhead expenditure variance

AFOH = 72,490

~ BFOH ~ 25 x 2,600 = 65,000

= 7,490 (A)

Fixed overhead volume variance

AO x FOAR/u 2,700 x 25 = 67,500

~ BO x FOAR/u ~ = 65,000

= 2,500 (F)

Page 6: ACCA F2 Variances

ACCA F2 Management Accounting

Question 5:

(a) Calculate the standard cost of a single metal container.

Material A (6 x 5.00) 30.00

Labour (2 x 4.50) 9.00

Variable overheads (2 x 7.50) 15.00

Fixed overheads (2 x 12.00) 24.00

78.00

(b) Cost variances for May 2000;

Direct materials price variance

AP x AQ = 18,290

~ SP x AQ ~ 5 x 3,550 = 17,750

= 540 (A)

Direct materials usage variance

AQ x SP 3,550 x 5 = 17,750

~ SQ x AO x SP ~ 6 x 600 x 5 = 18,000

= 250 (F)

Direct labour rate variance

AR x AHr = 5,610

~ SR x AHr ~ 4.50 x 1,320 = 5,940

= 330 (F)

Direct labour efficiency variance

AHr x SR = 5,940

~ SHr x AO x SR ~ 2 x 600 x 4.50 = 5,400

= 540 (A)

Variable overhead expenditure variance

AVOH = 9,400

~ VOAR x Ahr ~ 7.50 x 1,320 = 9,900

= 500 (F)

Variable overhead efficiency variance

Ahr x VOAR = 9,900

~ Shr x AO x VOAR ~ 2 x 600 x 7.50 = 9,000

= 900 (A)

Fixed overhead expenditure variance

AFOH = 15,610

~ BFOH ~ = 15,000

= 610 (A)

Fixed overhead volume variance

Shr x AO x FOAR 2 x 600 x 12 = 14,400

~ Bhr x FOAR ~ 15,000/12 x 12 = 15,000

= 600 (F)

Page 7: ACCA F2 Variances

ACCA F2 Management Accounting

Question 6:

(a) Operating statement

Budgeted Profit (10,000 x 8) 80,000

Sales margin volume variance (9,500 – 10,000) 8 4,000 A

Standard Profit for AO (9,500 x 8) 76,000

Adjustments:

Sales price variance 588,500 – 60 x 9,500 18,500 F

Material price variance 120,000 – 3 x 37,000 9,000 A

Material usage variance (37,000 – 4 x 9,500) 3 3,000 F

Labour rate variance 200,000 – 4 x 49,000 4,000 A

Labour efficiency variance (49,000 – 5 x 9,500) 4 6,000 A

VOH expenditure variance 47,000 – 5 x 9,500 500 F

FOH expenditure variance 145,000 – 3 x 5 x 10,000 5,000 F

FOH efficiency variance (49,000 – 5 x 9,500) 3 4,500 A

FOH capacity variance (49,000 – 50,000) 3 3,000 A

Net variances 500 F

Actual Profit 76,500

Page 8: ACCA F2 Variances

ACCA F2 Management Accounting

Short Questions

Q1: Direct materials usage variance

AQ x SP 3,850 x 5.00 = 19,250

~ SQ x AO x SP ~ 2 x 2,000 x 5.00 = 20,000

= 750 (F)

Direct materials price variance (production)

AP x AQ = 22,715

~ SP x AQ ~ 5.00 x 3,850 = 19,250

= 3,465 (A)

Direct materials cost variance

AP x AQ 22,715

~ SQ x AO x SP ~ 2 x 2,000 x 5.00 = 20,000

2,715 (A)

Q2: Direct materials price variance (production)

AP x AQ = 16,000

~ SP x AQ ~ 3.00 x 5,000 = 15,000

= 1,000 (A)

Direct materials usage variance

AQ x SP 5,000 x 3.00 = 15,000

~ SQ x AO x SP ~ 4 x 1,270 x 3 = 15,240

= 240 (F)

Direct materials cost variance

AP x AQ 16,000

~ SQ x AO x SP ~ 4 x 1,270 x 3 = 15,240

760 (A)

Q3: Direct materials price variance (production)

AP x AQ = 136,000

~ SP x AQ ~ 2.50 x 53,000 = 132,500

= 3,500 (A)

Direct materials usage variance

AQ x SP 53,000 x 2.50 = 132,500

~ SQ x AO x SP ~ 2 x 27,000 x 2.50 = 135,000

= 2,500 (F)

Direct materials cost variance

AP x AQ 136,000

~ SQ x AO x SP ~ 2 x 27,000 x 2.50 = 135,000

1,000 (A)

Page 9: ACCA F2 Variances

ACCA F2 Management Accounting

Q4: Direct materials price variance (production)

AP x AQ 2.60 x 12,000 = 31,200

~ SP x AQ ~ 2.50 x 12,000 = 30,000

= 1,200 (A)

Direct materials usage variance

AQ x SP 12,000 x 2.50 = 30,000

~ SQ x AO x SP ~ 10.5 x AO x 2.50 = 31,815

= 1,815 (F)

AO = 1,212

Direct materials cost variance

AP x AQ 2.60 x 12,000 = 31,200

~ SQ x AO x SP ~ 10.5 x 1,212 x 2.50 = 31,815

615 (F)

Q5: Direct materials cost variance

AP x AQ 42,912

~ SQ x AO x SP ~ 42,000/ 7,000 x 7,200 = 43,200

288 (F)

Answer: A

Q6: Direct labour rate variance

AR x AHr = 64,150

~ SR x AHr ~ 6.40 x 11,700 = 74,880

= 10,730 (F)

Direct labour efficiency variance

AHr x SR 11,700 x 6.40 = 74,880

~ SHr x AO x SR ~ 4.5 x 2,300 x 6.40 = 66,240

= 8,640 (A)

Direct labour cost variance

AR x AHr 64,150

~ SR x Shr x AO ~ = 66,240

2,090 (F)

Q7: Direct labour cost variance

AR x AHr 136,500

~ SR x Shr x AO ~ 1.60 x 2 x 38,000 = 121,600

14,900 (A)

Direct labour rate variance

AR x AHr = 136,500

~ SR x AHr ~ 1.60 x 78,000 = 124,800

= 11,700 (A)

Direct labour efficiency variance

AHr x SR 78,000 x 1.60 = 124,800

~ SHr x AO x SR ~ 2 x 38,000 x 1.60 = 121,600

= 3,200 (A)

Page 10: ACCA F2 Variances

ACCA F2 Management Accounting

Q8: Direct labour efficiency variance

AHr x SR (11 x 30 x 4) x 11.38/0.5 = 30,043.20

~ SHr x AO x SR ~ 0.5 x 2,850 x 11.38/0.5 = 32,433.00

= 2,389.80 (F)

Answer: C

Q9: Direct labour rate variance

AR x AHr = 62,579.60

~ SR x AHr ~ 21.96/2.4 x 6,760 = 61,854.00

= 743.60 (A)

Q10: Variable overhead expenditure variance

AVOH = 12,400

~ VOAR x AHr ~ = 12,720

= 320 (F)

Variable overhead efficiency variance

AHr x VOAR = 12,720

~ SHr x AO x VOAR ~ = 13,515

= 795 (F)

Variable overhead cost variance

AVOH 12,400

~ VOAR x Shr x AO ~ = 13,515

1,115 (F)

Q11: Variable overhead expenditure variance

AVOH = 8,330

~ VOAR x AHr ~ 0.60 x 8,640 = 5,184

= 3,146 (A)

Variable overhead efficiency variance

AHr x VOAR = 5,184

~ SHr x AO x VOAR ~ 2 x 4,800 x 0.60 = 5,760

= 576 (F)

Variable overhead cost variance

AVOH 8,330

~ VOAR x Shr x AO ~ = 5,760

2,570 (A)

Page 11: ACCA F2 Variances

ACCA F2 Management Accounting

Q12: Variable overhead expenditure variance

A: AVOH = 23,520

~ VOAR x AHr ~ 2 x 9,800 = 19,600

= 3,920 (A)

B: AVOH = 7,800

~ VOAR x AHr ~ 1.50 x 6,500 = 9,750

= 1,950 (F)

Total 1,970 (A)

Variable overhead efficiency variance

A: AHr x VOAR = 19,600

~ SHr x AO x VOAR ~ 20 x 500 x 2.00 = 20,000

= 400 (F)

B: AHr x VOAR = 9,750

~ SHr x AO x VOAR ~ 12 x 500 x 1.50 = 9,000

= 750 (A)

Total 350 (A)

Variable overhead cost variance

A: AVOH 23,520

~ VOAR x Shr x AO ~ = 20,000

3,520 (A)

B: AVOH = 7,800

~ VOAR x Shr x AO ~ = 9,000

= 1,200 (F)

Total 2,320 (A)

Q13: Fixed overhead expenditure variance

AFOH = 37,200

~ BFOH ~ 2,000 x 3 x 6 = 36,000

= 1,200 (A)

Q14: Fixed overhead volume variance

SHr for AO x FOAR 3 x 2,200 x 6 = 39,600

~ BHr x FOAR ~ = 36,000

= 3,600 (F)

Fixed overhead cost variance

AFOH = 37,200

~ FOAR x SHr x AO ~ 6 x 3 x 2,200 = 39,600

= 2,400 (F)

Q15: Fixed overhead volume variance

AO x FOAR/ u AO x 20 = 12,000

~ BO x FOAR/ u ~ 600 x 20 = 12,000

FOH Capacity variance + FOH Efficiency variance = -

AO = 600 units

Page 12: ACCA F2 Variances

ACCA F2 Management Accounting

Q16: Fixed overhead volume variance

AO x FOAR/ u 19,500 x 5 = 97,500

~ BO x FOAR/ u ~ 20,000 x 5 = 100,000

FOH Capacity variance + FOH Efficiency variance = 2,500 (F)

Q17: Fixed overhead expenditure variance

AFOH = 396,000

~ BFOH ~ 36,000/10 x 100 = 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

Answers for short questions

19 A 23 C 27 D 31 B

20 C 24 D 28 C

21 B 25 B 29 D

22 D 26 C 30 C