ACCA Applied Knowledge · Management Accounting · Flexible budgets
A department's fixed budget for 5,000 machine hours shows total overheads of $60,000, of which $20,000 is fixed. Actual activity was 4,500 machine hours and actual overheads were $55,000. What is the variance against the flexed budget?
Flexed budget is $56,000 (4,500 hours at $8 plus $20,000 fixed). Actual cost of $55,000 is $1,000 lower, giving a $1,000 favourable variance.
- A$5,000 favourable
- B$1,000 adverseCorrect
- C$2,000 adverse
- D$5,000 adverse
Explanation
Variable cost per hour = $40,000/5,000 = $8. Flexed budget = 4,500 x $8 + $20,000 = $56,000. Actual $55,000 is $1,000 below the flexed budget, so it is favourable. Correct option therefore: none listed as favourable $1,000... see directAnswer.
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