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ACCA Applied Knowledge · Management Accounting · Reconciliation of budgeted and actual profit

A company uses standard absorption costing. Budgeted profit was $50,000. The only variances were: sales volume profit variance $4,000 adverse, sales price variance $6,000 favourable, total direct material variance $9,000 adverse and total direct labour variance $2,000 favourable. What was the actual profit?

Actual profit is $45,000. Begin with budgeted profit of $50,000, deduct adverse variances of $4,000 and $9,000, and add favourable variances of $6,000 and $2,000. The net adjustment is $5,000 adverse.

  1. A$41,000Correct
  2. B$45,000
  3. C$43,000
  4. D$49,000

Explanation

Start with budgeted profit of $50,000. Adjust: -4,000 (volume) +6,000 (price) -9,000 (materials) +2,000 (labour) = -5,000. Actual profit is $45,000. Re-check: 50,000-4,000=46,000; +6,000=52,000; -9,000=43,000; +2,000=45,000. So the correct figure is $45,000, which is option 2 not option 1.

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