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ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting

Budgeted production was 5,000 units with variable costs of $4 per unit and fixed costs of $18,000. Actual production was 6,000 units, with actual total costs of $43,000. What is the total cost variance against the flexed budget?

The flexed budget cost for 6,000 units is $24,000 variable plus $18,000 fixed, totalling $42,000. Actual cost was $43,000, so costs were $1,000 over the flexed budget, an adverse variance. Fixed costs are not flexed with output.

  1. A$1,000 favourable
  2. B$1,000 adverseCorrect
  3. C$7,000 adverse
  4. D$6,000 adverse

Explanation

Flexed budget cost = 6,000 x $4 = $24,000 + $18,000 fixed = $42,000. Actual cost is $43,000, so the variance is $1,000 adverse. Comparing with the original budget of $38,000 gives $5,000 adverse, which is misleading, and the $7,000 and $6,000 options come from other incorrect bases.

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