FORMULA FOR SALES VARIANCES Sales value variance Price (SP – AP) x AQ
Volume (BQ – AQ) x SP
Sales/Profit margin variance Price (SM – AM) x AQ
Volume (BQ – AQ) x SM
2
Actual contribution
Budgeted contribution (Standard margin * Actual Volume)
Sales margin price variance
Budgeted contribution (Standard margin* Standard volume)
Sales margin volume variance
Total sales margin variance
3
SALES VARIANCE (MARGINAL COSTING) • TOTAL SALES MARGIN VARIANCE = ACTUAL CONTRIBUTION – BUDGETED CONTRIBUTION = [(ACTUAL SELLING PRICE – STANDARD COST OF SALES )*ACTUAL SALES VOLUME] – BUDGETED CONTRIBUTION
• SALES MARGIN PRICE VARIANCE = (ACTUAL CONTRIBUTION PER UNIT – STANDARD CONTRIBUTION PER UNIT) * ACTUAL SALES VOLUME
• SALES MARGIN VOLUME VARIANCE = (ACTUAL VOLUME – BUDGET VOLUME)* STANDARD CONTRIBUTION PER UNIT
4
SALES VARIANCE (ABSORPTION COSTING)
• SALES MARGIN PRICE VARIANCE = (ACTUAL PROFIT MARGIN PER UNIT – STANDARD PROFIT MARGIN PER UNIT) * ACTUAL SALES VOLUME
• SALES MARGIN VOLUME VARIANCE = (ACTUAL VOLUME – BUDGET VOLUME)* STANDARD PROFIT MARGIN PER UNIT
5
HZL Ltd. makes and sells a single product. The company uses a Standard marginal costing system. It plans to produce and sell 1000 units in May 2017. A budget statement is produced as follow: Budgeted income statement for the month ended 31 May 2017 $ $ Sales ($50*1000) 50000 Less: Variable cost of goods sold Direct materials ($3*4000) 12000 Direct labour ($5*3000) 15000 Variable overheads ($2*3000) 6000 33000 Budget contribution 17000 Fixed overhead 3000 Budget profit 14000
7
The actual sales and production is 800 units. The actual income statement is shown as follows:
Income statement for the month ended 31 May 2017 $ Sales ($60*800) Less: Variable cost of goods sold Direct materials ($3.2*2400) Direct labour ($6*3200) Actual Variable overheads Contribution Fixed overhead Net profit
$ 48000
12000 15000 5500 32380 15620 2600 13020
8
SALES VARIANCE (MARGINAL COSTING) • TOTAL SALES MARGIN VARIANCE = ACTUAL CONTRIBUTION – BUDGETED CONTRIBUTION = [(ACTUAL SELLING PRICE – STANDARD COST OF SALES )*ACTUAL SALES VOLUME] – BUDGETED CONTRIBUTION = [($60 - $33)*800] - $17000 = $21600 - $17000
= $4600 (F)
$33000/1000 units
9
SALES VARIANCE •
SALES MARGIN PRICE VARIANCE
= (ACTUAL CONTRIBUTION PER UNIT – STANDARD CONTRIBUTION PER UNIT) * ACTUAL SALES VOLUME = [($60 - $33) – ($50 - $33)]*800 = $8000 F
•
$33000/1000 units
SALES MARGIN VOLUME VARIANCE = (ACTUAL VOLUME – BUDGET VOLUME)* STANDARD CONTRIBUTION PER UNIT = (800 -1000)*$17 = $2800 (A)
$17000/1000 units
10
SALES VARIANCE (MARGINAL COSTING)
• SALES MARGIN PRICE VARIANCE • SALES MARGIN VOLUME VARIANCE • TOTAL SALES VARIANCE
$8000 F $3400 A $4600 F
11
SALES VARIANCE (ABSORPTION COSTING) • SALES MARGIN PRICE VARIANCE = (ACTUAL PROFIT MARGIN PER UNIT – STANDARD PROFIT MARGIN PER UNIT) * ACTUAL SALES VOLUME = [($60-$36) – ($50-$36)]*800 = $8000 F
(33000+3000)/1000 units
• SALES MARGIN VOLUME VARIANCE
= (ACTUAL VOLUME – BUDGET VOLUME)* STANDARD PROFIT MARGIN PER UNIT = (800-1000)*$14 = $3400 A
$14000/1000 units
12
SALES VARIANCE (ABSORPTION COSTING)
• SALES MARGIN PRICE VARIANCE • SALES MARGIN VOLUME VARIANCE • TOTAL SALES VARIANCE
$8000 F $2800 A $5200 F
13
Actual FO
Budgeted FO
FO expenditure variance/ FO spending variance
Absorbed VO (SP* standard hours for actual output
FO volume variance
Total FO variance (under-/over- absorbed)
15
FIXED OVERHEAD VARIANCE
• FIXED OVERHEADS VARIANCE = FIXED OVERHEADS ABSORBED – ACTUAL FIXED OVERHEADS INCURRED
• FIXED OVERHEADS EXPENDITURE VARIANCE BUDGETED FIXED OVERHEADS – BUDGETED OVERHEADS ABSORBED
• FIXED OVERHEADS VOLUME VARIANCE = ABSORBED FIXED OVERHEADS – BUDGETED OVERHEADS ABSORBED
16
HZL Ltd. makes and sells a single product. The company uses a Standard marginal costing system. It plans to produce and sell 1000 units in May 2017. A budget statement is produced as follow: Budgeted income statement for the month ended 31 May 2017 $ $ Sales ($50*1000) 50000 Less: Variable cost of goods sold Direct materials ($3*4000) 12000 Direct labour ($5*3000) 15000 Variable overheads ($2*3000) 6000 33000 Budget contribution 17000 Fixed overhead 3000 Budget profit 14000
18
The actual sales and production is 800 units. The actual income statement is shown as follows:
Income statement for the month ended 31 May 2017 $ Sales ($60*800) Less: Variable cost of goods sold Direct materials ($3.2*2400) Direct labour ($6*3200) Actual Variable overheads Contribution Fixed overhead Net profit
$ 48000
12000 15000 5500 32380 15620 2600 13020
19
FIXED OVERHEAD VARIANCE •
FIXED OVERHEADS VARIANCE = FIXED OVERHEADS ABSORBED – ACTUAL FIXED OVERHEADS INCURRED = ($1*3*800) - $2600 = $200 A
•
FIXED OVERHEADS EXPENDITURE VARIANCE = BUDGETED FIXED OVERHEADS – BUDGETED OVERHEADS ABSORBED = $3000 - $2600
= $400 F
•
FIXED OVERHEADS VOLUME VARIANCE = ABSORBED FIXED OVERHEADS – BUDGETED OVERHEADS ABSORBED = ($1*3*800) - $3000
= $600 A
20
FIXED OVERHEAD VARIANCE IN MARGINAL AND ABSORPTION COSTING IN MARGINAL COSTING:
• FIXED OVERHEADS ARE CHARGED AS PERIOD COSTS INSTEAD OF CHARGING TO PRODUCT IN MARGINAL COSTING.
• IT IS ASSUMED THAT THE FIXED OVERHEADS REMAIN UNCHANGED WITH THE CHANGE IN THE LEVEL OF ACTIVITY. SINGLE FIXED OVERHEAD EXPENDITURE VARIANCE WILL BE USED
21
IN ABSORPTION COSTING
• FIXED OVERHEADS ARE CHARGED TO THE PRODUCTS AND INCLUDED IN THE VALUATION OF CLOSING STOCK.
• TOTAL FIXED OVERHEADS VARIANCE IS DIVIDED INTO FIXED OVERHEADS PRICE VARIANCE AND FIXED OVERHEADS VOLUME VARIANCE
22
THE END