ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting
Vega Ltd's Department X had a budget of $200,000 and actual costs of $236,000, including $15,000 of central service charges that were $6,000 above budget due to head office policy, and $12,000 of extra material costs caused by a market-wide price increase of which the manager had no control. Budgeted material cost was unaffected otherwise. What is the adverse variance attributable to the manager's controllable performance?
The controllable adverse variance is $18,000. The total overspend is $36,000, from which the $6,000 excess central charge and $12,000 market-wide price increase are deducted as uncontrollable by the manager, leaving $18,000 attributable to the manager's own decisions.
- A$18,000Correct
- B$36,000
- C$24,000
- D$12,000
Explanation
Total adverse variance is 236,000 - 200,000 = 36,000. Remove uncontrollable items: 6,000 central charges and 12,000 market price rise = 18,000. Leaving 36,000 - 18,000 = 18,000 controllable. $24,000 removes only the market price; $12,000 removes only central charges wrongly.
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