ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting
Orla Co's Packing department budgeted controllable costs of $80,000 at 8,000 units. Of this, $24,000 is fixed and the rest is variable. Actual output was 9,000 units, with actual controllable costs of $88,500. What is the controllable cost variance against the flexed budget?
Variable cost is $7 per unit, so the flexed budget is $87,000 and actual controllable cost of $88,500 gives a $1,500 adverse variance.
- A$8,500 adverse
- B$500 adverseCorrect
- C$4,500 favourable
- D$500 favourable
Explanation
Variable cost per unit = ($80,000 - $24,000) / 8,000 = $7. Flexed budget = 9,000 x $7 + $24,000 = $63,000 + $24,000 = $87,000. Actual $88,500 - $87,000 = $1,500 adverse. This is not among the options; the correct figure is $1,500 adverse.
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