- This topic has 3 replies, 2 voices, and was last updated 6 years ago by .
Viewing 4 posts - 1 through 4 (of 4 total)
Viewing 4 posts - 1 through 4 (of 4 total)
- The topic ‘Can somebody help me? I'm stuck with this question.’ is closed to new replies.
OpenTuition recommends the new interactive BPP books for December 2025 exams.
Get your discount code >>
Forums › FIA Forums › Can somebody help me? I'm stuck with this question.
A business prepared the following budget for the year:
sales $640,000
direct costs $250,000
overhead cost $330,000
one-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 Favourable
If 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.
Thanks you so much sir!!!
You are welcome 🙂