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ACCA Applied Knowledge · Management Accounting · Cost reductions and value enhancement

A council spent $240,000 on a training programme and delivered 1,600 training hours against a plan of 2,000 hours at a budget of $250,000. Which statement is correct about the cost per training hour?

Actual cost was $150 per training hour (240,000/1,600) against a plan of $125 (250,000/2,000). Since each unit of output cost more than planned, the programme was less efficient, even though total spending was below budget.

  1. AActual $150 per hour versus planned $125 per hour, so the programme was less efficient than plannedCorrect
  2. BActual $150 per hour versus planned $125 per hour, so the programme was more economical than planned
  3. CActual $120 per hour versus planned $125 per hour, so the programme was more efficient than planned
  4. DActual $150 per hour versus planned $120 per hour, so the programme was less efficient than planned

Explanation

Actual cost per hour is 240,000/1,600 = $150. Planned is 250,000/2,000 = $125. Higher cost per unit of output means lower efficiency. Total spend was lower, but that does not show economy or efficiency per hour.

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