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CMA Intermediate · Management Accounting · Responsibility Accounting

Budgeted cost of a plant manager's department was Rs 5,00,000 at 10,000 units, of which Rs 2,00,000 is fixed. Actual output was 12,000 units. Actual cost was Rs 6,50,000, including Rs 30,000 of corporate overhead allocation not in the budget and outside the manager's control. What is the manager's controllable variance against the flexed budget?

The controllable variance is Rs 60,000 adverse. The flexed budget for 12,000 units is Rs 5,60,000 (fixed 2,00,000 plus 30 per unit variable), while controllable actual cost is Rs 6,20,000 after removing the Rs 30,000 uncontrollable corporate allocation.

  1. ARs 60,000 adverseCorrect
  2. BRs 90,000 adverse
  3. CRs 1,50,000 adverse
  4. DRs 30,000 adverse

Explanation

Variable cost per unit = 3,00,000/10,000 = Rs 30. Flexed budget = 2,00,000 + 12,000 x 30 = 5,60,000. Controllable actual cost = 6,50,000 - 30,000 = 6,20,000. Variance = 60,000 adverse. Rs 90,000 wrongly keeps the allocation in actual cost.

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