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

Case: Narmada Foods Ltd budgeted sales of 5,000 units at Rs 200 with a standard variable cost of Rs 120 per unit. Actual sales were 5,400 units at Rs 190 per unit, with the same standard variable cost. Compute the sales price variance and the sales volume variance based on contribution (standard margin).

The price variance is Rs 54,000 adverse, being Rs 10 shortfall on 5,400 actual units. The volume variance is Rs 32,000 favourable, being 400 extra units at the standard contribution of Rs 80 per unit.

  1. APrice Rs 54,000 adverse; volume Rs 32,000 favourableCorrect
  2. BPrice Rs 54,000 adverse; volume Rs 40,000 favourable
  3. CPrice Rs 54,000 favourable; volume Rs 32,000 adverse
  4. DPrice Rs 50,000 adverse; volume Rs 32,000 favourable

Explanation

Price variance = (190-200) x 5,400 = Rs 54,000 adverse. Volume variance = (5,400-5,000) x standard contribution of Rs 80 = Rs 32,000 favourable. Using Rs 100 as margin gives Rs 40,000, which is the wrong base, and using 5,000 units for price is wrong.

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