ACCA Applied Knowledge · Management Accounting · Flexible budgets
Budgeted figures for 8,000 units are: variable costs $96,000 and fixed costs $40,000. Actual output was 9,000 units with actual total costs of $152,000. What is the total cost variance against the flexible budget?
The flexed budget at 9,000 units is $12 x 9,000 = $108,000 variable plus $40,000 fixed, totalling $148,000. Actual costs were $152,000, so the variance is $4,000 adverse because actual spending exceeded the flexible budget allowance.
- A$4,000 adverseCorrect
- B$16,000 adverse
- C$12,000 adverse
- D$4,000 favourable
Explanation
Variable cost per unit = $96,000/8,000 = $12. Flexed variable cost at 9,000 units = $108,000. Add fixed costs $40,000 to get $148,000. Actual $152,000 minus $148,000 = $4,000 adverse. The $12,000 adverse option wrongly compares with a budget of $140,000, flexing nothing but adding the original fixed cost incorrectly, and $16,000 uses ignoring the flex of variable costs.
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