[jaysen465]

I’m doing the CPAExcel practice exam questions and I’m having an issue understanding this concept. The questions is:

Central Winery manufactured two products, A and B. Estimated demand for product A was 10,000 bottles and for product B was 30,000 bottles. The estimated sales price per bottle for A was $6.00 and for B was $8.00. Actual demand for product A was 8,000 bottles and for product B was 33,000 bottles. The actual price per bottle for A was $6.20 and for B was $7.70. What amount would be the total selling price variance for Central Winery?

A. $3,700 unfavorable.

B. $8,300 unfavorable.

C. $3,700 favorable.

D. $14,100 favorable.

My calculation is Actual Units x (Actual Price – Standard Price) which is [(8,000 × ($6.20 − $6.00)] + [33,000 × ($7.70 − $8.00)] = ($8,300) which IS favorable. Why is this unfavorable based Wiley’s answer? Actual price for the 33,000 units was .30 cents less than standard which absorbs the unfavorable difference for the 8,000 units on demand. Can anyone explain?

FAR: 48, 71, 74, 83
AUD: 74, 78
BEC: 69, 74, 74
REG: 71, 74

I only fail when I quit.

[Anonymous]

What's the correct answer from Wiley's?

[jsch8912]

@jaysen465: The answer is right. You have a favorable variance for product A because the actual sales price per bottle is greater than the standard sales price per bottle. The favorable variance is 1,600. You have an unfavorable variance for product B because the actual sales price per bottle is less than the standard sales price per bottle. The unfavorable variance is 9,900. The unfavorable is greater than the favorable so it only absorbs the 1,600 hence it is 8,300 unfavorable.

Hope this helps!

[jaysen465]

@jsch8912 if the actual price is less than the standard price isn't that favorable not unfavorable for product B since your spending less than what was budgeted? I use this same concept on Becker MSQs and I always get the question correct. So confused….

FAR: 48, 71, 74, 83
AUD: 74, 78
BEC: 69, 74, 74
REG: 71, 74

I only fail when I quit.

[Anonymous]

@jaysen this question is referring to sales price not purchase price.

[Ssbknyc]

SP Variance = Actual Units Sold x [Budgeted SP per unit – Actual SP per Unit]

When you approach variance questions first look at the facts, you can usually tell whether you have a Favorable Variance or Unfavorable Variance before even calculating.

When looking at product A, the actual SP is > then the Budgeted SP; so you know when you perform your calculation, you are going to get a Favorable variance

When looking at product B, the actual SP is < then the Budgeted SP; so you know when you perform your calculation, you are going to get an unfavorable variance

In this particular problem when you perform you variance calculations for both products; the Unfavorable Variance for product B is LARGER THAN the Favorable Variance for Product A

So you will have a NET Unfavorable Variance, which is the call of the question.

Hope this helps.

Done 08/2014-08/2015

[jaysen465]

Got it… Thanks for the clarification everyone…..

FAR: 48, 71, 74, 83
AUD: 74, 78
BEC: 69, 74, 74
REG: 71, 74

I only fail when I quit.

[Author]

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