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CMA Intermediate · Management Accounting · Forecasting, Budgeting and Budgetary Control

Budgeted output was 8,000 units with selling price Rs 100, variable cost Rs 60 and fixed cost Rs 1,50,000. Actual output and sales were 9,000 units and actual profit was Rs 2,00,000. Compared with the flexed budget profit at actual activity, the profit variance is:

The variance is Rs 10,000 adverse. Flexed budget profit at 9,000 units is 9,000 x Rs 40 contribution less Rs 1,50,000 fixed cost, equal to Rs 2,10,000, which exceeds actual profit of Rs 2,00,000.

  1. ARs 10,000 favourableCorrect
  2. BRs 10,000 adverse
  3. CRs 40,000 favourable
  4. DRs 50,000 favourable

Explanation

Flexed profit = 9,000 x 40 - 1,50,000 = Rs 2,10,000. Actual profit is Rs 2,00,000, so variance is Rs 10,000 adverse, not favourable. Correct choice is therefore adverse Rs 10,000.

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