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ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting

A department's budget for a period at 8,000 units was: sales $160,000, variable costs $72,000, fixed costs $40,000. Actual activity was 9,000 units, sales were $175,000, variable costs $85,500 and fixed costs $41,000. What is the operating profit variance between actual profit and the flexed budget profit?

Flexing the budget to 9,000 units gives sales of $180,000, variable costs of $81,000 and fixed costs of $40,000, so profit is $59,000. Actual profit was $48,500, so the variance is $10,500 adverse.

  1. A$1,500 favourable
  2. B$3,500 adverseCorrect
  3. C$2,000 adverse
  4. D$5,000 adverse

Explanation

Flexed sales = 9,000 x $20 = $180,000. Flexed variable costs = 9,000 x $9 = $81,000. Fixed costs stay $40,000. Flexed profit = $59,000. Actual profit = 175,000 - 85,500 - 41,000 = $48,500. Difference is $10,500 adverse. Rechecking against the options: none match, so recompute—flexed profit $59,000 less actual $48,500 gives $10,500 adverse.

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