Skip to content

ACCA Applied Knowledge · Management Accounting · Reconciliation of budgeted and actual profit

Quill Co uses absorption costing. Budgeted sales were 10,000 units, standard selling price $30, standard full production cost $22 per unit. Actual sales were 9,500 units at $31 each. What is the sales volume variance?

The sales volume variance is $4,000 adverse. With absorption costing it is valued at standard profit per unit, $30 less $22, which is $8. Sales were 500 units below the budget of 10,000, so 500 x $8 gives $4,000, adverse because fewer units were sold.

  1. A$4,000 adverseCorrect
  2. B$5,000 adverse
  3. C$4,000 favourable
  4. D$15,000 adverse

Explanation

Under absorption costing the volume variance uses standard profit per unit: $30 - $22 = $8. The shortfall is 10,000 - 9,500 = 500 units, so 500 x $8 = $4,000 adverse. Using $10 (actual price less cost, mixing in the price variance) would give $5,000, which is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Reconciliation of budgeted and actual profit shows your real accuracy, how long you take and where you lose marks.

Practise Reconciliation of budgeted and actual profitFree diagnostic mock

More Reconciliation of budgeted and actual profit questions