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ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis

Orla Co budgeted to sell 10,000 units at $20 each with a standard variable cost of $12 per unit. Actual sales were 9,500 units, with revenue of $199,500. Which pair of variances is correct?

The sales price variance is $9,500 favourable and the sales volume contribution variance is $4,000 adverse. The actual price was $21 against $20 standard on 9,500 units, while the 500-unit shortfall loses $8 contribution each.

  1. ASales price $9,500 favourable; sales volume contribution $4,000 adverseCorrect
  2. BSales price $9,500 favourable; sales volume contribution $10,000 adverse
  3. CSales price $10,000 favourable; sales volume contribution $4,000 adverse
  4. DSales price $9,500 adverse; sales volume contribution $4,000 adverse

Explanation

Actual price = 199,500 / 9,500 = $21. Price variance = (21 - 20) x 9,500 = $9,500 favourable. Volume shortfall is 500 units x contribution $8 (20 - 12) = $4,000 adverse. Using $20 per unit for volume gives $10,000, which ignores variable cost.

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