ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting
Epsilon Ltd budgeted to produce 5,000 units with variable costs of $12 per unit and fixed costs of $30,000. Actual output was 5,600 units, and total actual costs were $99,000. Using a flexed budget, what is the total cost variance?
The total cost variance is $1,800 adverse. The flexed budget for 5,600 units is $67,200 variable plus $30,000 fixed, giving $97,200, and actual costs of $99,000 exceed this by $1,800. Flexing removes the effect of higher activity.
- A$1,800 adverseCorrect
- B$1,800 favourable
- C$2,400 favourable
- D$3,000 adverse
Explanation
Flexed cost = 5,600 x 12 = 67,200 + 30,000 fixed = $97,200. Actual cost is $99,000, so the variance is $1,800 adverse. Comparing with the original budget (90,000) would wrongly give $9,000 adverse.
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