ACCA Applied Knowledge · Management Accounting · Flexible budgets
Kappa Ltd's original budget for 4,000 units was: sales $80,000, materials $20,000, labour $16,000 (all variable) and fixed costs $24,000. Actual output and sales were 4,500 units, with sales $87,750, materials $23,400, labour $19,000 and fixed costs $25,000. What is the actual profit variance against the flexed budget?
The profit variance against the flexed budget is $5,150 adverse: flexed profit is $25,500 and actual profit is $20,350, with adverse sales price, material, labour and fixed cost variances.
- A$250 favourable
- B$1,250 adverse
- C$250 adverseCorrect
- D$1,750 favourable
Explanation
Flexed: sales 4,500 x 20 = 90,000; materials 4,500 x 5 = 22,500; labour 4,500 x 4 = 18,000; fixed 24,000; profit = 25,500. Actual profit = 87,750 - 23,400 - 19,000 - 25,000 = 20,350. Variance = 25,500 - 20,350 = 5,150 adverse. Check: sales -2,250, materials -900, labour -1,000, fixed -1,000 = -5,150. The correct figure is $5,150 adverse, so none of the listed options matches.
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