ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting
Budget for 5,000 units: variable costs $60,000 and fixed costs $30,000. Actual output was 5,500 units with total actual costs of $97,000. What is the total cost variance against the flexed budget?
The variance is $1,000 adverse. Flexing the budget to 5,500 units gives variable costs of $66,000 plus fixed costs of $30,000, totalling $96,000. Actual costs of $97,000 are $1,000 higher. The $7,000 fixed-budget difference mostly reflects extra volume, not poor control.
- A$7,000 adverse
- B$1,000 adverseCorrect
- C$4,000 adverse
- D$1,000 favourable
Explanation
Variable cost per unit = 60,000/5,000 = $12. Flexed budget for 5,500 units = 66,000 + 30,000 = 96,000. Actual 97,000 - 96,000 = 1,000 adverse. Comparing with the original budget of 90,000 gives 7,000 adverse, which ignores the higher activity.
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