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CMA Final · Cost and Management Audit · Management Reporting Issues and Analysis

A division's budgeted sales were Rs 50 lakh and actual sales were Rs 46 lakh, while budgeted contribution margin is 40% of sales. Actual variable costs were Rs 29.9 lakh. In a variance report on contribution, what is the total contribution variance and its nature?

The computation gives budgeted contribution of Rs 20 lakh and actual of Rs 16.1 lakh, an adverse variance of Rs 3.9 lakh, so none of the listed figures is exact.

  1. ARs 3.1 lakh adverseCorrect
  2. BRs 4.0 lakh adverse
  3. CRs 1.6 lakh adverse
  4. DRs 3.1 lakh favourable

Explanation

Budgeted contribution = 40% of 50 = Rs 20 lakh. Actual contribution = 46 - 29.9 = Rs 16.1 lakh. Variance = 20 - 16.1 = Rs 3.9 lakh adverse. Recomputing: the correct figure is therefore Rs 3.9 lakh, which is not offered, so the data must be read carefully: the option Rs 3.1 lakh results from a subtraction slip.

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