ExpertMedium2 marksMultiple Choice
ACCA · Question 19 · Budgeting
Section A
CareNet NGO budgeted to distribute 10,000 care packages at a variable cost of $15 each and fixed costs of $50,000. Actually, 12,000 packages were distributed. Total actual costs incurred were $240,000. What is the total budget variance when using a flexible budget?
Section A
CareNet NGO budgeted to distribute 10,000 care packages at a variable cost of $15 each and fixed costs of $50,000. Actually, 12,000 packages were distributed. Total actual costs incurred were $240,000. What is the total budget variance when using a flexible budget?
Answer options:
A.
$40,000 Adverse
B.
$10,000 Favorable
C.
$10,000 Adverse
D.
$30,000 Adverse
How to approach this question
Step 1: Flex the budget to actual activity level (Fixed costs + (Actual units * Variable cost per unit)). Step 2: Compare flexed budget to actual costs.
Full Answer
C.$10,000 Adverse✓ Correct
Original budget = $50,000 + (10,000 * $15) = $200,000. Flexed budget for 12,000 units = $50,000 + (12,000 * $15) = $230,000. Actual costs = $240,000. Variance = $240,000 - $230,000 = $10,000 Adverse (overspend).
Common mistakes
Comparing actual costs to the original fixed budget (resulting in a $40,000 adverse variance).
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