ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting
A department's budgeted cost for the period was $48,000. Actual cost was $51,600. Which statement correctly describes the budget variance?
The variance is $3,600 adverse, because actual cost of $51,600 exceeded the budgeted cost of $48,000. When a cost is higher than budget, the profit is reduced, so the variance is classed as adverse rather than favourable.
- A$3,600 favourable
- B$3,600 adverseCorrect
- C$3,600 adverse only if output was higher than budgeted
- D$51,600 adverse
Explanation
For a cost, actual above budget gives an adverse variance: 51,600 - 48,000 = 3,600 adverse. A favourable label would be wrong because costs were higher than planned. Without flexing we cannot attribute any of it to volume, but the fixed budget comparison is simply $3,600 adverse.
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