Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Flexible budgets

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- April 20, 2022 at 10:22 am #654037
A firm uses flexible budgets Last period the fixed budget was to produce 5,500 units and the actual productions 5,000 units. The actual direct costs for the period compared to the flexed budget was

Actual result

Total variance. 5000 favorable

Direct costs. 60000$

What was the direct costs fixed budget for last period?

$55,000

$65,000

$60,500

$71,500

I figured the answer is 65000 but I’m confused should i include the variance figures? Then answer will be 5500-5000= 500. 60000+500=60500 please let me know how to calculate

April 20, 2022 at 2:45 pm #654094The variance is the difference between the actual costs ($60,000) and the flexed budget. Therefore the flexed budget total cost (i.e. the standard cost for the actual production) must be $65,000.

Therefore the standard cost per unit is 65,000/5,000 = $13.

Therefore the original fixed budget must have been 5,500 x $13 = $71,500.

Have you watched my free lectures on variances? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.

(Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and explanations.)

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