ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis
A company using standard absorption costing has a budgeted profit of $50,000. In the period, the total of all favourable variances is $8,000 and the total of all adverse variances is $11,000. What is the actual profit shown by the operating statement?
Actual profit is $47,000. In an operating statement, favourable variances are added to budgeted profit and adverse variances are deducted, so 50,000 plus 8,000 minus 11,000 gives 47,000. The other options reverse the signs or treat all variances alike.
- A$47,000Correct
- B$53,000
- C$69,000
- D$31,000
Explanation
Start with budgeted profit and add favourable variances and deduct adverse ones: 50,000 + 8,000 - 11,000 = $47,000. Reversing the treatment of the variances gives $53,000. Adding both gives $69,000 and subtracting both gives $31,000, both of which ignore the direction of the variances.
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