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CA Intermediate · Cost and Management Accounting · Standard Costing

Rao Appliances Ltd budgeted sales of 2,000 units at standard selling price Rs 500 and standard cost Rs 380. Actual sales were 2,200 units at Rs 490 each. What is the sales margin price variance and sales margin volume variance respectively?

Sales margin price variance is (490-500) x 2,200 = Rs 22,000 adverse, and the volume variance is 200 extra units x standard margin Rs 120 = Rs 24,000 favourable, giving a net favourable margin variance of Rs 2,000.

  1. ARs 22,000 Adverse; Rs 24,000 FavourableCorrect
  2. BRs 20,000 Adverse; Rs 24,000 Favourable
  3. CRs 22,000 Adverse; Rs 26,400 Favourable
  4. DRs 22,000 Favourable; Rs 24,000 Adverse

Explanation

Price variance = (490 - 500) x 2,200 = Rs 22,000 Adverse. Volume variance = (2,200 - 2,000) x standard margin 120 = Rs 24,000 Favourable. Option three wrongly uses the actual margin of 110 x 200... mixing bases. Total margin variance = 2,000 Favourable; check: actual margin 2,200 x 110 = 2,42,000 less budget 2,40,000 = 2,000 F.

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