ACCA Applied Skills · Performance Management · Budgetary systems and types of budget
Brindle Ltd budgeted sales of 5,000 units with variable cost of $6 per unit and fixed cost of $20,000. Actual sales were 4,500 units, and actual total cost was $46,500. What is the cost variance when measured against the flexed budget?
The cost variance is $500 favourable. Flexing the budget to 4,500 units gives $20,000 fixed plus $27,000 variable, which is $47,000. Actual cost of $46,500 is $500 below that figure, so the variance is favourable.
- A$500 adverseCorrect
- B$500 favourable
- C$3,000 adverse
- D$3,000 favourable
Explanation
Flexed budget cost = 20,000 + 4,500 x 6 = $47,000. Actual cost is $46,500, which is $500 lower, so the variance is favourable. Hence the correct answer is $500 favourable in direction; option B is correct. Comparing with the original budget of $50,000 gives $3,500 favourable, which ignores flexing.
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