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Budget and Actual activity comparison

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Budget and Actual activity comparison

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • October 5, 2021 at 2:14 pm #637021
    Syed Ahsan Ali
    Participant
    • Topics: 111
    • Replies: 69
    • ☆☆

    If we have budgeted cost card:
    Budgeted cost = $150,000
    Budgeted units = 10,000

    And we have actual activity as follows:
    Actual cost = $140,000
    Actual units = 12,000

    Since we budgeted our total cost of $150,000 based on producing 10,000 units in total but in actual we have to produce more for some reason and we ended up producing 12,000 units at the total cost of $140,000. We cannot compare the budgeted activity with the actual activity because both of them are producing a different number of units and due to this reason it is totally absurd to compare them!

    What we can do is to calculate the standard cost per unit to find out the total standard cost like this:

    [Standard cost per unit = $150,000 / 10,000 = $15 per unit]

    Total Standard cost with 12,000 activity level is calculated like this:

    [Total Standard cost = $15 x 12,000 actual units = $180,000]

    Now we are able to compare the actual activity with standard cost because both of them are calculated on the same units produced basis.

    Just because budgeted units were different than actual units we can’t compare them but we can easily compare the standard cost with the actual activity because both of them are producing the same number of units.

    This is what I understood after watching your lecture in F2 video. Is this correct SIR?

    October 5, 2021 at 4:09 pm #637042
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51582
    • ☆☆☆☆☆

    Yes – that is all correct 🙂

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