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ACCA Applied Knowledge · Management Accounting · Spreadsheets

A budget model calculates total cost in cell F2 as =B2*C2+D2, where B2 is 500 units, C2 is a variable cost of $6 per unit and D2 is fixed cost of $1,200. The accountant wrongly intended to apply a 10% uplift to the whole cost and typed =B2*C2+D2*1.1. What is the difference between the value this formula produces and the intended value (uplift on the whole cost)?

The formula is understated by $300. It gives 3,000 + 1,320 = $4,320 because multiplication happens before addition, whereas the intended (3,000 + 1,200) x 1.1 equals $4,620. Brackets were needed to apply the uplift to the whole cost.

  1. A$300 understatedCorrect
  2. B$300 overstated
  3. C$120 understated
  4. D$420 understated

Explanation

Intended: (3,000 + 1,200) x 1.1 = 4,620. Actual: 3,000 + 1,200 x 1.1 = 3,000 + 1,320 = 4,320. Difference = 4,620 - 4,320 = 300, so the actual is understated by $300. Operator precedence applies multiplication before addition, so brackets were needed. $120 is the uplift on fixed cost alone.

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