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A business prepared the following budget for the year:
sales $640,000
direct costs $250,000
overhead cost $330,000one-third of overhead costs are variable costs. Actual results for the year were to make and sell only 90% of the budgeted quantities. Sales revenue was $570,000 and costs were $565,000.
what was the total cost variance (due to price and usage issues) for the year?
A. $15,000 Adverse
B. $21,000 Favourable
C. $21,000 Adverse
D. $15,000 FavourableIf 1/3 of the overheads are variable then the variable overheads were budgeted at $110,000 and the fixed overheads at $220,000.
Because the production was only 90% of the budgeted quantities, the variable costs should only be 90% of the budgeted variable costs and should therefore be
90% x (250,000 + 110,000) = $324,000.The fixed overheads should remain at $220,000 by definition.
Therefore the total costs should be 324,000 + 220,000 = $544,000.
The variance is the difference between this figure and the actual total cost of $565,000.
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