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Actual Budget
Units 42000 40000
Sales price 5 5.5
Variable costs 2 3
Fixed costs 7000 7200
Required: using sales revenue, contribution margin and net profit compute the following :
• Static budget variance .
• Flexible budget variance ( or standard variance) .
• Volume variance.
Sales Variances ( more than one product)
• Consider the following :
Actual data Budgeted data
Product (A) Product (B) Product (A) Product (B)
Units 756 144 712 178
Sales price 12.5 14 13 13.5
Variable costs 6 7 5 7.5
Market-size 4000 3560
The standard direct materials cost per unit is the standard direct
materials price times the standard direct materials quantity. Suppose
each unit produced needs two kilos of raw material and the cost of
each kilo is JD 5 , so the standard cost per unit produced is JD 10 ( 5
times 2).
Determine direct materials variances.
• Static budget variance = (Actual Quantity × Actual price ) - (Budgeted
Quantity × standard price ). This variance is composed of (Volume variance
and standard variance (Flexible budget variance).
• Volume variance = (Standard Quantity allowed - Budgeted Quantity )
standard price ).
Where :
• Standard quantity allowed : the quantity that should be used to produce the actual
production .
• Standard costs allowed : the cost that should be expensed to produce the actual
production. So the standard costs for the actual production can be calculated as
follows :
Actual units produced times standard quantity allowed times standard price)
• standard variance = (Actual Quantity × Actual price ) - (Standard Quantity
allowed × standard price ). The summation of volume variance and
standard variance should equal static budget variance.
• The standard variance is composed of Price variance and Quantity
variance.
• Price variance = (Actual price - standard price) Actual Quantity .
• Quantity variance = (Actual Quantity - standard Quantity allowed ) standard
price .
Required :
Static budgeted variance and its components.
• When more than one material used to produce the product then :
• The Quantity variance is composed of Material mix variance and Yield
variance.
• Material mix variance = total actual quantity used from all material ( actual percentage –
standard percentage ) standard price.
• Yield variance = (total actual quantity – total standard quantity allowed ) standard
percentage × standard price.
Example: more than one material.
• The budgeted and actual data:
Budgeted data Actual data
Units produced 550 500
Quantity :
Material (A) 9 kilos per unit In total 5183 kilos
Material (B) 3 kilos per unit In total 2117 kilos
Kilo price Material (A) JD 4 per kilo JD 4.2 per kilo
Material (B) JD 6 per kilo JD 5.6 per kilo
Budgeted Actual
Units produced 3000 2800
Hours per each unit produced 3 hours 2.5 hours
Rate per hour JD 6 JD 6.5