Page 503 - F2 - MA Integrated Workbook STUDENT 2018-19

Answers

Chapter 13

Example 1

A company planned to produce and sell 1,000 units and had a direct material
budget of $5,000 but they only produced and sold 900 with a direct material
cost of $4,800. It looks like the company has spent less on material than it
had budgeted,
Budget Actual Variance

$5,000 $4,800 $200 favourable

However, this is not comparing like with like, the actual cost must be
compared to the flexed budget.

Budgeted material cost per unit = $5,000/1,000 = $5 per unit

Total flexed budget material cost = $5 × 900 = $4,500

Budget Flexed budget Actual Variance
1,000 units 900 units 900 units 0 units

$5,000 $4,500 $4,800 $300 adverse

The difference between the actual and the flexed budget is known as the
budget variance.

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