ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis
Budgeted profit for a period was $80,000. The variances were: total favourable $12,000 and total adverse $18,500. Assuming there are no other differences, what was the actual profit?
Actual profit was $73,500. Start with budgeted profit of $80,000, add favourable variances of $12,000 and deduct adverse variances of $18,500. Favourable variances raise profit and adverse variances reduce it, so the net effect is a $6,500 reduction.
- A$73,500Correct
- B$49,500
- C$86,500
- D$110,500
Explanation
Actual profit equals budget profit plus favourable variances less adverse variances: 80,000 + 12,000 - 18,500 = $73,500. Subtracting both sets of variances gives $49,500, and reversing the signs gives $86,500; both treat variances incorrectly.
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