r unit. The following Favourable (F) and Adverse (A) variances were reported for the year 20X2. Variance £ Material total. 160,000 (A) Material price. 120,000 (F) Labour total. 125,000 (A) Labour price. 222,000 (F) Sales price. 214,000 (A) Sales volume. 416,000 (F) Fixed overhead expenditure. 212,000 (F) Variable overhead total. 512,000
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Airplan plc budgets to produce 2,400 air conditioning units per annum with a standard contribution of £1,400 per unit. The following Favourable (F) and Adverse (A) variances were reported for the year 20X2.
Variance £
Material total. 160,000 (A)
Material price. 120,000 (F)
Labour total. 125,000 (A)
Labour price. 222,000 (F)
Sales price. 214,000 (A)
Sales volume. 416,000 (F)
Fixed
Variable overhead total. 512,000 (F)
The budgeted fixed overhead expenditure for 20X2 was £3,000,000.
The actual profit for 20X2 was
OA. £3,789,000
OB. £1,343,000
OC. £1,121,000
OD. £1,001,000
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