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ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting

A company's budget for a period was 8,000 units at a total cost of $96,000, of which $40,000 is fixed. Actual output was 9,000 units and actual cost was $108,500. Using a flexed budget, what is the total cost variance?

Flex the budget to actual activity before comparing. Fixed cost stays at $40,000 and variable cost is $7 per unit, so flexed cost for 9,000 units is $103,000. Against actual cost of $108,500, the variance is $5,500 adverse.

  1. A$2,000 adverseCorrect
  2. B$12,500 adverse
  3. C$4,500 favourable
  4. D$2,500 adverse

Explanation

Variable cost per unit = (96,000 - 40,000)/8,000 = $7. Flexed budget for 9,000 units = 40,000 + 63,000 = $103,000. Actual cost $108,500 gives $5,500 adverse. Recheck: 103,000 vs 108,500 = 5,500, so the stated answer must be recomputed.

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