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ACCA Applied Knowledge · Management Accounting · Monitoring performance and reporting

A manager cuts the selling price below standard to boost demand. Actual sales are 12,000 units against a budget of 10,000 units. The standard selling price is $20 and the actual price is $19. Standard contribution is $8 per unit and the business uses marginal costing. What are the sales price variance and sales volume contribution variance?

The sales price variance is $12,000 adverse (12,000 units sold $1 below standard) and the sales volume contribution variance is $16,000 favourable (2,000 extra units at $8 standard contribution). The price cut therefore traded a lower price for higher volume.

  1. APrice $12,000 adverse; volume $16,000 favourableCorrect
  2. BPrice $12,000 adverse; volume $20,000 favourable
  3. CPrice $10,000 adverse; volume $16,000 favourable
  4. DPrice $12,000 favourable; volume $16,000 adverse

Explanation

Price: 12,000 x ($19 - $20) = $12,000 adverse. Volume: (12,000 - 10,000) x $8 = $16,000 favourable. Using the $20 price would give $40,000 wrongly, since volume uses standard contribution.

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