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Area I: Business AnalysisBARArea IVariance Analysis

CPA · Question 02 · Area I: Business Analysis

A company is analyzing its gross margin variance. The budgeted data for the quarter indicated sales of 10,000 units at $50 per unit with a standard cost of $30 per unit. Actual results showed sales of 11,000 units at $48 per unit with an actual cost of $32 per unit.<br/><br/>Which of the following correctly identifies the sales price variance and the sales volume variance?

Answer options:

A.

Sales Price Variance: $20,000 Favorable; Sales Volume Variance: $20,000 Favorable

B.

Sales Price Variance: $22,000 Unfavorable; Sales Volume Variance: $50,000 Favorable

C.

Sales Price Variance: $22,000 Unfavorable; Sales Volume Variance: $50,000 Favorable

D.

Sales Price Variance: $20,000 Unfavorable; Sales Volume Variance: $48,000 Favorable

How to approach this question

Apply the standard variance formulas. Price Variance isolates the price difference on the actual volume. Volume Variance isolates the quantity difference at the standard price.

Full Answer

C.Sales Price Variance: $22,000 Unfavorable; Sales Volume Variance: $50,000 Favorable✓ Correct
Sales Price Variance = (Actual Price - Budgeted Price) x Actual Quantity Sold<br/>= ($48 - $50) x 11,000 = -$22,000 (Unfavorable, as price is lower).<br/><br/>Sales Volume Variance (Revenue impact) = (Actual Quantity - Budgeted Quantity) x Budgeted Price<br/>= (11,000 - 10,000) x $50 = $50,000 (Favorable, as volume is higher).

Common mistakes

Using budgeted quantity for price variance; using actual price for volume variance.
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