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QUESTION
As a result of the results in January to March, Kamal Co reconsidered its approach to budgeting
and adopted a form of rolling budgeting, starting in April for the next twelve months. The
budgeted figures for the remainder of the year before the rolling budget was introduced were
as follows:
$
April-June 550,000
July-September 560,000
October-December 575,000
Kamal Co amended the budget so that budgeted sales for April-June were 20% higher than in
the original budget, and then increased by 5% in July-September and October-December. It did
not subsequently amend the budget for July-September. Actual sales for July-September were
$610,000.
Calculate the difference in the total sales operational variance, using the original budgeted
and revised (rolling) budgeting figures.ANSWER
Variance calculated using original budget = $610,000 – $560,000 = $50,000 F
Revised budget = $550,000 × 120% × 105% = $693,000
Variance calculated using revised budget = $610,000 – $693,000 = $83,000 A
Difference = $50,000 + $83,000 = $133,000My question is why do they minus $560000 from $610000 if the question asks us to find operational variance?
It is because the question is not asking for the operational variance, it is asking for the difference in the operational variances.
If the sales had not been revised, then the operational variance would have been the difference between actual and original budget, which is 50,000 F
After they have been revised, the difference between actual and revised is 83,000 ASo the difference between the two is 133,000.
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