CA Intermediate · Cost and Management Accounting · Standard Costing
A company using standard costing finds that its sales budget was 2,000 units at standard selling price Rs 100 and standard cost Rs 70 per unit. Actual sales were 2,200 units at Rs 98 per unit. Using the profit-based approach, what is the sales price variance and sales volume (profit) variance?
Sales price variance is Rs 4,400 Adverse and sales volume variance is Rs 6,000 Favourable. The price fell by Rs 2 on 2,200 units, while 200 extra units were sold at a standard profit of Rs 30 per unit.
- APrice Rs 4,400 Adverse; Volume Rs 6,000 FavourableCorrect
- BPrice Rs 4,400 Adverse; Volume Rs 6,600 Favourable
- CPrice Rs 4,000 Adverse; Volume Rs 6,000 Favourable
- DPrice Rs 4,400 Favourable; Volume Rs 6,000 Adverse
Explanation
Sales price variance = (AP - SP) x AQ = (98 - 100) x 2,200 = Rs 4,400 Adverse. Sales volume variance = (AQ - BQ) x standard profit = 200 x 30 = Rs 6,000 Favourable. Rs 6,600 wrongly uses a 2,200-unit base for the profit margin difference.
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