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ACCA Strategic Professional · Strategic Business Leader · Cost and management accounting

Orion Foods budgeted sales of 10,000 units at a standard contribution of $8 per unit under absorption costing with a standard profit of $5 per unit. Actual sales were 9,000 units. The sales volume variance is best reported to management as which of the following?

The 1,000-unit shortfall gives a sales volume variance of $8,000 adverse under marginal costing (standard contribution) and $5,000 adverse under absorption costing (standard profit). The valuation basis depends on the costing method used.

  1. A$8,000 adverse if marginal costing is used, or $5,000 adverse if absorption costing is usedCorrect
  2. B$5,000 adverse under both methods
  3. C$8,000 adverse under both methods
  4. D$8,000 favourable under marginal costing, $5,000 adverse under absorption

Explanation

Volume shortfall is 1,000 units. Marginal costing values it at standard contribution: 1,000 x $8 = $8,000 adverse. Absorption costing uses standard profit: 1,000 x $5 = $5,000 adverse. The basis differs between methods.

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