A fixed budget for 10,000 units shows variable costs of £200,000. Actual output was 11,000 units and actual variable costs were £228,000. What is the variance against the flexed budget?
Answer and explanation
Correct answer: D. £8,000 adverse
- Step 1: Variable cost per unit = £200,000 / 10,000 = £20.
- Step 2: Flexed budget for 11,000 units = 11,000 × £20 = £220,000.
- Step 3: Actual £228,000 - £220,000 = £8,000, adverse because actual cost is higher.
Answer
£8,000 adverse.
Why not the others: £28,000 compares actual with the original budget, ignoring the extra output. £20,000 is the difference between the original and flexed budgets, not a variance. Costs above the flexed budget are adverse.
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