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CMA Foundation · Fundamentals of Financial and Cost Accounting · Meaning and Significance of Cost Accounting and its Relationship with Financial Accounting

Vikram Engineering budgeted a cost of Rs 6,00,000 for 10,000 units. Actual output was 11,000 units at actual cost Rs 6,50,000. Variable cost is Rs 40 per unit and the rest of the budgeted cost is fixed. By how much was the cost performance favourable or adverse against a flexed budget?

The cost performance was Rs 10,000 adverse. Fixed cost is Rs 2,00,000, so the flexed budget for 11,000 units is Rs 2,00,000 plus Rs 4,40,000, which equals Rs 6,40,000. Actual cost of Rs 6,50,000 is higher by Rs 10,000.

  1. ARs 50,000 adverse
  2. BRs 10,000 favourableCorrect
  3. CRs 10,000 adverse
  4. DRs 40,000 adverse

Explanation

Budgeted fixed cost = 6,00,000 - 10,000 x 40 = Rs 2,00,000. Flexed budget for 11,000 units = 2,00,000 + 4,40,000 = Rs 6,40,000. Actual 6,50,000 exceeds this by Rs 10,000, so it is adverse, not favourable. Correct choice is therefore adverse Rs 10,000.

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