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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Strategic Cost & Performance Management

Case: Godavari Paints Ltd budgeted sales of 5,000 units at Rs 300 with standard variable cost Rs 180 per unit. Actual sales were 5,400 units at Rs 290. Using marginal costing, what are the sales price variance and sales volume (profit) variance?

Price variance is Rs 54,000 adverse and volume variance is Rs 48,000 favourable. Price is Rs 10 lower on 5,400 units. Volume exceeds budget by 400 units, valued at the standard contribution of Rs 120 per unit under marginal costing.

  1. APrice Rs 54,000 Adverse; Volume Rs 48,000 FavourableCorrect
  2. BPrice Rs 54,000 Adverse; Volume Rs 54,000 Favourable
  3. CPrice Rs 50,000 Adverse; Volume Rs 48,000 Favourable
  4. DPrice Rs 54,000 Adverse; Volume Rs 120,000 Favourable

Explanation

Price variance = 5,400 x (290-300) = Rs 54,000 adverse. Standard contribution per unit = 300-180 = Rs 120. Volume variance = 400 x 120 = Rs 48,000 favourable. Rs 54,000 wrongly uses the sale price of 300 less nothing..., mixing in price.

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