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CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control

Gupta Engineering budgets for 10,000 units: sales Rs 20,00,000, variable cost Rs 12,00,000 and fixed cost Rs 5,00,000. Actual output and sales were 11,500 units at the budgeted selling price and variable cost per unit, and actual fixed cost was Rs 5,40,000. What is the actual profit compared with the flexed budget profit, i.e. the fixed cost variance effect?

Flexed contribution is 11,500 x Rs 80 = Rs 9,20,000. Flexed budget profit is Rs 4,20,000 after budgeted fixed cost of Rs 5,00,000, and actual profit is Rs 3,80,000 after actual fixed cost of Rs 5,40,000.

  1. AActual profit Rs 3,60,000; flexed budget profit Rs 4,00,000
  2. BActual profit Rs 4,20,000; flexed budget profit Rs 4,60,000Correct
  3. CActual profit Rs 4,60,000; flexed budget profit Rs 4,60,000
  4. DActual profit Rs 4,60,000; flexed budget profit Rs 4,00,000

Explanation

Contribution per unit = (20,00,000 - 12,00,000)/10,000 = Rs 80. Flexed contribution for 11,500 units = 9,20,000. Flexed profit = 9,20,000 - 5,00,000 = 4,20,000; actual profit = 9,20,000 - 5,40,000 = 3,80,000. So correct figures are 3,80,000 actual and 4,20,000 flexed, which differ from the options shown.

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