Question Tag: Sales Variance

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  • 15 Marks

MA – Nov 2019 – L2 – Q3b – Standard costing and variance analysis

Calculate and analyze sales-related variances for Sasraku Ltd’s three products based on given data for the last period.

b) Sasraku Ltd manufactures and sells standard quality fuel pumps. Other companies integrate these pumps in their production of petrol engines. At present, Sasraku Ltd manufactures only three different types of fuel pumps: oil pump, gas pump, and diesel pump. Simon, the Management Accountant, allocates fixed overheads to these pumps on an absorption costing system.

The standard selling price, volumes, and cost data for these three products for the last period are as follows:

The total fixed production overhead for the last period was estimated in the budget to be GH¢526,500. This was absorbed on a machine-hour basis.

The Board of Directors has decided to calculate the variances for the period to analyze the sales performance of the company.

The following information of actual volumes and selling prices for the three products in the last period was obtained:

Required:

i) Calculate the standard profit per unit.
(3 marks)

ii) Calculate the following variances for overall sales for the last period:
Sales profit margin variance
Sales mix profit variance
Sales quantity profit variance
Sales volume profit variance
(8 marks)

iii) Prepare a statement showing the reconciliation of budgeted profit for the period to actual sales less standard cost
(4 marks)

i) Calculation of standard profit per unit

Working
W1 calculation of overhead absorption rate Budget machine hours = (10,000*1.95) + (13,000*3.90) + (9,000*5.20) =117,000 hours As company follows absorption costing method, fixed overheads are allocated don
machine hours’ basis. Overhead adsorption rate = GH¢526,500/117,000 hours = GH¢4.50 per machine hour.
(3 marks evenly spread using ticks)

ii)

  • Actual sales quantity at actual profit margin (at actual selling price less
    standard cost)

  • Actual sales quantity at actual mix at standard profit

  • Actual sales quantity at standard mix at standard profit


Alternative approach to actual sales quantity in standard mix t standard profit
= Actual quantity * average standard profit per unit
=31,500 units* GH¢25.1875 per units = GH¢793,403

Sales profit margin variance

(2 marks)

Sales mix profit variance

Alternative solution
Sales profit margin variance

iii)Reconciliation statement

(4 marks evenly spread using ticks)

  • 15 Marks

MA – Mar 2024 – L2 – Q3a – Standard costing and variance analysis

This question calculates the sales price, volume, quantity, and mix variances for three products sold by Manjo Plc for the month of January.

The following information relates to the estimate and actual results of Manjo Plc for the month of January:

Particulars KO TO KA
Budgeted sales (units) 36,000 27,000 18,000
Standard selling price (GH¢) 15 10 12.5
Standard variable cost (GH¢) 8 4 7.5
Actual sales (units) 30,000 35,000 25,000
Actual sales (GH¢) 420,000 367,500 325,000

Required:
i) Calculate the sales price variance. (3 marks)
ii) Calculate the sales volume variance. (3 marks)
iii) Analyse the sales volume variance into:

  • Sales quantity variance. (5 marks)
  • Sales mix variance. (4 marks)

i) Sales Price Variance:
The sales price variance measures the impact of the difference between the actual selling price and the budgeted selling price on the actual units sold.

Product Calculation Variance (GH¢) Result
KO (Budgeted Price – Actual Price) × Actual Units Sold (15 – (420,000/30,000)) × 30,000 = 30,000 Adverse
TO (10 – (367,500/35,000)) × 35,000 (10 – 10.5) × 35,000 = 17,500 Favourable
KA (12.5 – (325,000/25,000)) × 25,000 (12.5 – 13) × 25,000 = 12,500 Favourable

Total Sales Price Variance = 30,000 Adverse + 17,500 Favourable + 12,500 Favourable = 5,000 Adverse
(Marks are evenly spread using ticks = 3 marks)

ii) Sales Volume Variance:
The sales volume variance shows the effect of the difference between actual sales volume and budgeted sales volume, valued at the standard contribution.

Product Budgeted Sales (Units) Actual Sales (Units) Volume Variance (Units) Contribution per Unit (GH¢) Variance (GH¢)
KO 36,000 30,000 6,000 A 7 42,000 A
TO 27,000 35,000 8,000 F 6 48,000 F
KA 18,000 25,000 7,000 F 5 35,000 F

Total Sales Volume Variance = 41,000 Favourable
(Marks are evenly spread using ticks = 3 marks)

iii) Sales Quantity Variance:
The sales quantity variance measures the effect of the difference between the actual total sales and the budgeted total sales, valued at the standard contribution.

Product Budgeted Sales (Units) Standard Contribution (GH¢) Budgeted Contribution (GH¢)
KO 36,000 7 252,000
TO 27,000 6 162,000
KA 18,000 5 90,000
Total 81,000 6.2222 504,000
Actual Sales (Units) Actual Contribution (GH¢)
90,000 6.2222
Variance 56,000 Favourable

(Marks are evenly spread using ticks = 5 marks)

iv) Sales Mix Variance:
The sales mix variance measures the effect of the deviation of the actual sales mix from the budgeted sales mix.

Product Actual Mix (Units) Standard Mix (Units) Mix Variance (Units) Contribution per Unit (GH¢) Variance (GH¢)
KO 30,000 40,000 10,000 A 7 70,000 A
TO 35,000 30,000 5,000 F 6 30,000 F
KA 25,000 20,000 5,000 F 5 25,000 F

Total Sales Mix Variance = 15,000 Adverse

  • 10 Marks

MA – Dec 2023 – L2 – Q3a – Standard costing and variance analysis

This question involves calculating various cost and sales variances for Odumasi Ltd under a standard marginal costing system.

Odumasi Ltd has just introduced a new standard marginal costing system to assist in the planning and control of the production activities for the single product, which the company manufactures – ‘Tekie’. The system became operational on 1 March 2021.

The Management Accountant has consulted with the Senior Engineer and they have agreed on the following standard specifications to manufacture one unit of the product ‘Tekie’:

  • Direct materials: 4 kg @ GH¢1.75 per kg
  • Direct labour: 2 hours @ GH¢10 per hour
  • Variable overhead: 2 hours @ GH¢8.25 per hour

According to the Marketing Director, Odumasi Ltd operates in an industry where the budgeted selling price is normally calculated to achieve a markup of 30% on cost. The budgeted level of production and sales activity has been agreed with both production managers and sales staff at 24,000 units per month.

The actual results for the month of March 2021 are as follows:

  • Sales: 22,000 units yielding a total revenue of GH¢1,276,000.
  • Production: 23,000 units.
  • Direct Materials: 90,000 kg @ GH¢162,000.
  • Direct labour: 48,000 hours @ GH¢576,000.
  • Variable overhead: GH¢350,000.

Required:
Calculate the relevant variances for March 2021 under the headings of sales, materials, labour, and overheads.

Sales Variances:

  1. Sales Price Variance:
    Did sell: 22,000 units for GH¢1,276,000
    Expected to sell: 22,000 units @ GH¢56.55 = GH¢1,244,100
    Variance: GH¢31,900 (Favorable)
  2. Sales Volume Variance (based on contribution):
    Did sell: 22,000 units @ GH¢13.05 = GH¢287,100
    Expected to sell: 24,000 units @ GH¢13.05 = GH¢313,200
    Variance: GH¢26,100 (Adverse)

Material Variances:

  1. Material Price Variance:
    Did pay: 90,000 kg @ GH¢1.8 = GH¢162,000
    Expected to pay: 90,000 kg @ GH¢1.75 = GH¢157,500
    Variance: GH¢4,500 (Adverse)
  2. Material Usage Variance:
    Did use: 90,000 kg @ GH¢1.75 = GH¢157,500
    Expected to use: 4 kg x 23,000 units = 92,000 kg @ GH¢1.75 = GH¢161,000
    Variance: GH¢3,500 (Favorable)

Labour Variances:

  1. Labour Rate Variance:
    Did pay: GH¢576,000
    Expected to pay: 48,000 hours @ GH¢10 = GH¢480,000
    Variance: GH¢96,000 (Adverse)
  2. Labour Efficiency Variance:
    Did take: 48,000 hours @ GH¢10 = GH¢480,000
    Expected to take: 2 hours x 23,000 units = 46,000 hours @ GH¢10 = GH¢460,000
    Variance: GH¢20,000 (Adverse)

Overhead Variances:

  1. Overhead Expenditure Variance:
    Did cost: GH¢350,000
    Expected to pay: 48,000 hours @ GH¢8.25 = GH¢396,000
    Variance: GH¢46,000 (Favorable)
  2. Overhead Efficiency Variance:
    Did take: 48,000 hours @ GH¢8.25 = GH¢396,000
    Expected to take: 2 hours x 23,000 units = 46,000 hours @ GH¢8.25 = GH¢379,500
    Variance: GH¢16,500 (Adverse)
  • 5 Marks

MA – Nov 2018 – L2 – Q2a – Relevant cost and revenue

Discuss the relevance of classifying costs as fixed or variable in decision-making processes, with a focus on their relevance or irrelevance to decisions.

Costs may be classified as fixed or variable. This classification method is useful for decision-making because variable costs are relevant costs whereas fixed costs are irrelevant.

Required:
Explain this statement.

  • Generally, the classification of costs as fixed or variable identifies those costs which change in total when activity changes (variable costs) and those whose total remains constant (fixed costs).
  • Relevant costs are those which are affected by a decision, and since most decisions affect activity levels, variable costs (which change when activity changes) can be seen as relevant costs.
  • However, it does not automatically follow that fixed costs are not relevant. Some fixed costs may be specific to a product or department and therefore may be avoidable. For example, a decision to discontinue a product will cause the product-specific cost to be saved.
  • The general notion that fixed costs are not relevant is therefore incorrect. Each decision must be considered individually, as there will be circumstances when fixed costs must be considered relevant due to their avoidability.
  • 9 Marks

MA – Nov 2015 – L2 – Q1d – Standard costing and variance analysis

Calculate sales, material, wage, overhead variances, and reconcile budgeted profit to actual profit.

You have been asked as a cost accountant to reconcile the Budgeted profit to the actual profit using the variance report generated by the management accountant.

i. Calculate the sales variances (2 marks)
ii. The total material variance (1 mark)
iii. The total wage variances (1 mark)
iv. Total manufacturing overhead variances (1 mark)
v. Reconciliation of Budget profit to the actual profit (4 marks)

(Total = 9 marks)

i) Sales Price Variance:
Sales price variance = (Actual contribution – Standard contribution) x Actual quantity
= (¢55 – ¢50) x 9000 = ¢45,000F

Sales Volume Variance:
(Actual volume – Standard volume) x Standard contribution
= (9000 – 10,000) x 50 = 50,000A

Total Sales Variance:
Sales margin price variance = ¢45,000F
Sales margin volume variance = ¢50,000A
Total sales variance = ¢5,000A

ii) Total Material Variance:
Total material variance = Material price variance + Material usage variance
= 22,250A + 66,250A = 88,500A

iii) Total Wage Variance:
Total wage variance = Wage rate variance + Labour efficiency variance
= ¢42,750A + ¢33,750A = ¢76,500A

iv) Total Manufacturing Overhead Variance:
Total manufacturing overhead variance = Fixed overhead expenditure variance + Variable overhead expenditure variance + Variable overhead efficiency variance
= 10,000F + 12,500F + 7,500A = 15,000F

v) Reconciliation of Budgeted Profit to Actual Profit:

Item GHS
Budgeted net profit 200,000
Sales variances:
Sales margin price 45,000F
Sales margin volume 50,000A
Total Sales Variance 5,000A
Direct cost variance:
Material price 66,250A
Material usage 22,250A
Total material variance 88,500A
Total wage variance:
Wage rate variance 42,750A
Labour efficiency 33,750A
Total wage variance 76,500A
Total overhead variance:
Fixed overhead expenditure variance 10,000F
Variable overhead expenditure variance 12,500F
Variable overhead efficiency variance 7,500A
Total overhead variance 15,000F
Total Variance 155,000A
Profit 45,000
  • 15 Marks

MA – Nov 2016 – L2 – Q4a – Standard costing and variance analysis

Calculate various sales, material, labour, and overhead variances for Jungle Twist Ltd based on the provided data.

Jungle Twist Ltd manufactures quality blocks for the housing industry in Ghana. It operates a standard marginal costing system. The following standard costs, volume, and revenue data for the quarter ending 31 October 2015 are provided:

Standard cost card:

  • Selling price: GH¢18 per block
  • Costs:
    • Direct material P: 3 kg at GH¢2.60 per kg
    • Direct material Q: 2 kg at GH¢2.50 per kg
    • Direct labour: 2 hours at GH¢0.60 per hour
    • Variable overheads: GH¢0.50 per direct labour hour
  • Budgeted sales for the quarter: 62,500 blocks
  • Variable overheads are absorbed at the rate of GH¢0.50 per direct labour hour.
  • Fixed production overhead for the quarter is estimated to be GH¢78,500.

The following actual results were recorded for the quarter just ended 31 October 2015:

  • Production: 60,000 blocks
  • Sales: 58,000 blocks
  • Selling price: GH¢17.00 per block
  • Direct material P: 150,000 kg were bought and used at GH¢360,000
  • Direct material Q: 109,000 kg were bought and used at GH¢327,000
  • Direct labour: 108,000 hours were worked for at a cost of GH¢90,400
  • Variable overheads: GH¢82,000
  • Fixed production overheads: GH¢80,000

Required:
Calculate the following variances for the quarter just ended 30 September 2015:

i) Sales volume and sales price variances; (3 marks)

ii) Price and usage variances for each material; (3 marks)

iii) Mix and yield variance for each material; (3 marks)

iv) Labour rate, labour efficiency, and idle time variances; (3 marks)

v) Variable overheads expenditure and variable overheads efficiency variances. (3 marks)

i) Sales Volume and Sales Price Variances:

  • Sales Volume Variance:
    Budgeted sales units: 62,500
    Actual sales units: 58,000
    Variance in units: 4,500A
    Standard contribution margin: GH¢3
    Variance: GH¢13,500A
  • Sales Price Variance:
    58,000 units should have been sold for (58,000 x GH¢18) = GH¢1,044,000
    But were sold for (58,000 x GH¢17) = GH¢986,000
    Variance: GH¢58,000A

ii) Price and Usage Variances for Each Material:

  • Material Price Variances:
    • Material P:
      Actual purchases should have cost (150,000 x GH¢2.60) = GH¢390,000
      But did cost GH¢360,000
      Variance: GH¢30,000F
    • Material Q:
      Actual purchases should have cost (109,000 x GH¢2.50) = GH¢272,500
      But did cost GH¢327,000
      Variance: GH¢54,500A
  • Material Usage Variances:
    • Material P:
      60,000 units should have used (60,000 x 3kg) = 180,000 kg
      But did cost 150,000 kg
      Variance: 30,000 kg F
      Standard price: GH¢2.60
      Variance: GH¢78,000F
    • Material Q:
      60,000 units should have used (60,000 x 2kg) = 120,000 kg
      But did cost 109,000 kg
      Variance: 11,000 kg F
      Standard price: GH¢2.50
      Variance: GH¢27,500F

iii) Mix and Yield Variance for Each Material:

  • Material Mix Variance:
Material Actual Materials in Standard Mix (kg) Actual Materials in Actual Mix (kg) Difference (kg) Standard Price (GH¢) Variance (GH¢)
P 155,400 150,000 5,400 F 2.60 14,040 F
Q 103,600 109,000 5,400 A 2.50 13,500 A
Total Variance: 540 F 540 F
  • Material Yield Variance:
Material Expected Output (units) Actual Output (units) Difference (units) Standard Yield Price (GH¢) Variance (GH¢)
P 30,000 36,000 6,000 F 2.56 15,360 F
Q 21,800 24,000 2,200 A 2.56 5,632 F
Total Variance: 20,992 F

iv) Labour Rate, Labour Efficiency, and Idle Time Variances:

  • Labour Rate Variance:
    108,000 hours should have cost (108,000 x GH¢0.60) = GH¢64,800
    But did cost GH¢90,400
    Variance: GH¢25,600A
  • Labour Efficiency Variance:
    60,000 units should have used (60,000 x 2hrs) = 120,000 hours
    But did cost 108,000 hours
    Variance: 12,000 hours F
    Standard price: GH¢0.60
    Variance: GH¢7,200F

v) Variable Overheads Expenditure and Efficiency Variances:

  • Variable Overheads Expenditure Variance:
    108,000 hours should have cost (108,000 x GH¢0.50) = GH¢54,000
    But did cost GH¢82,000
    Variance: GH¢28,000A
  • Variable Overheads Efficiency Variance:
    60,000 units should have used (60,000 x 2hrs) = 120,000 hours
    But did cost 108,000 hours
    Variance: 12,000 hours F
    Standard price: GH¢0.50
    Variance: GH¢6,000F

(Total: 15 marks)

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