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ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting

Hollis Co budgeted to produce 5,000 units with variable costs of $8 per unit and fixed costs of $30,000. Actual production was 6,200 units and actual total cost was $82,000. What is the total cost variance against the flexed budget?

The flexed budget cost is $79,600, being 6,200 units at $8 variable cost plus $30,000 fixed cost. Actual cost of $82,000 exceeds this by $2,400, so the variance is $2,400 adverse. Comparing with the original $70,000 budget would wrongly give $12,000.

  1. A$2,400 adverseCorrect
  2. B$2,400 favourable
  3. C$7,600 adverse
  4. D$12,000 adverse

Explanation

Flexed budget cost = 6,200 x $8 = $49,600 variable plus $30,000 fixed = $79,600. Actual cost was $82,000, so the variance is $2,400 adverse. The $12,000 distractor compares actual cost with the original fixed budget of $70,000, which ignores the activity change.

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