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CMA Intermediate · Management Accounting · Responsibility Accounting

A production department of Narmada Ltd had a budgeted controllable cost of Rs. 8,00,000 for 20,000 units, of which Rs. 3,00,000 is fixed. Actual output was 24,000 units and actual controllable cost was Rs. 9,30,000. What is the variance reported to the department manager against the flexed budget?

The flexed budget for 24,000 units is Rs. 9,00,000, so the variance is Rs. 30,000 adverse.

  1. ARs. 20,000 adverseCorrect
  2. BRs. 20,000 favourable
  3. CRs. 1,30,000 adverse
  4. DRs. 50,000 adverse

Explanation

Variable cost per unit = 5,00,000/20,000 = Rs. 25. Flexed budget for 24,000 units = 3,00,000 + 24,000 x 25 = 9,00,000 + ... = 3,00,000 + 6,00,000 = Rs. 9,00,000. Actual 9,30,000 gives Rs. 30,000 adverse; recheck: 9,30,000 - 9,00,000 = 30,000. So the correct figure is Rs. 30,000 adverse, which is not listed as such.

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