ExpertHard10 marksShort Answer
ACCA · Question 37 · Standard costing
Section B — Multi-Task Scenario 2 (Standard Costing)
Scenario: AeroForge Heavy Manufacturing
AeroForge uses standard absorption costing. The management accountant has prepared the following operating statement data for the month:
- Budgeted Profit: $140,000
- Sales volume profit variance: $10,000 Favorable
Operating Variances:
- Sales price variance: $8,000 Adverse
- Material price variance: $5,000 Favorable
- Material usage variance: $14,000 Adverse
- Labor rate variance: $3,000 Adverse
- Labor efficiency variance: $6,000 Favorable
- Fixed overhead expenditure variance: $2,000 Adverse
Task:
Reconcile the variances to calculate the Actual Profit for the month.
(Enter your answer as a whole number)
Section B — Multi-Task Scenario 2 (Standard Costing)
Scenario: AeroForge Heavy Manufacturing
AeroForge uses standard absorption costing. The management accountant has prepared the following operating statement data for the month:
- Budgeted Profit: $140,000
- Sales volume profit variance: $10,000 Favorable
Operating Variances:
- Sales price variance: $8,000 Adverse
- Material price variance: $5,000 Favorable
- Material usage variance: $14,000 Adverse
- Labor rate variance: $3,000 Adverse
- Labor efficiency variance: $6,000 Favorable
- Fixed overhead expenditure variance: $2,000 Adverse
Task:
Reconcile the variances to calculate the Actual Profit for the month.
(Enter your answer as a whole number)
How to approach this question
1. Start with Budgeted Profit.
2. Add the Sales volume profit variance to get Standard Profit on Actual Sales.
3. Sum all operating variances (Favorable are positive, Adverse are negative).
4. Add the net operating variance to the Standard Profit on Actual Sales to find Actual Profit.
Full Answer
Standard Profit on Actual Sales = Budgeted Profit ($140,000) + Sales Volume Variance ($10,000 F) = $150,000.
Now, sum the operating variances:
- Sales price: -$8,000
- Material price: +$5,000
- Material usage: -$14,000
- Labor rate: -$3,000
- Labor efficiency: +$6,000
- Fixed OH exp: -$2,000
Net Operating Variance = -8,000 + 5,000 - 14,000 - 3,000 + 6,000 - 2,000 = -$16,000 (Net Adverse).
Actual Profit = Standard Profit on Actual Sales + Net Operating Variance
Actual Profit = $150,000 - $16,000 = $134,000.
Common mistakes
Reversing the signs (adding adverse variances and subtracting favorable ones).
Practice the full ACCA MA — Management Accounting Practice Exam 6
38 questions · hints · full answers · grading
More questions from this exam
Q01**Section A**
Global Wildlife Trust, an international NGO, is deciding whether to expand its con...EasyQ02**Section A**
CloudSync, a rapidly growing SaaS tech startup, monitors the daily server uptime a...EasyQ03**Section A**
AgriGrow operates a network of automated hydroponic farms. The management accounta...MediumQ04**Section A**
A municipal water treatment plant utilizes both financial accounting and managemen...EasyQ05**Section A**
In a boutique consulting firm, management relies heavily on quantitative variance ...Medium