ExpertMedium2 marksMultiple Choice
ACCA · Question 21 · Syllabus D: Budgeting
A commercial spaceflight operator originally budgeted to launch 4 satellites, with total variable fuel costs of $8,000,000 and fixed operational costs of $12,000,000.
During the year, they actually launched 5 satellites. Actual total costs were $23,500,000.
What is the total budget variance when comparing actual results to a FLEXED budget?
A commercial spaceflight operator originally budgeted to launch 4 satellites, with total variable fuel costs of $8,000,000 and fixed operational costs of $12,000,000.
During the year, they actually launched 5 satellites. Actual total costs were $23,500,000.
What is the total budget variance when comparing actual results to a FLEXED budget?
Answer options:
A.
$3,500,000 Adverse
B.
$1,500,000 Adverse
C.
$1,500,000 Favorable
D.
$500,000 Favorable
How to approach this question
1. Find variable cost per unit ($8m / 4). 2. Create flexed budget for 5 units (Fixed + 5*VC). 3. Compare flexed budget to actual costs.
Full Answer
B.$1,500,000 Adverse✓ Correct
1. Original variable cost per launch = $8,000,000 / 4 = $2,000,000.
2. Flexed budget for 5 launches = Fixed costs ($12,000,000) + Variable costs (5 × $2,000,000) = $22,000,000.
3. Actual costs = $23,500,000.
4. Variance = $23,500,000 (Actual) - $22,000,000 (Flexed) = $1,500,000 Adverse (since actual costs were higher than budgeted for that level of activity).
Common mistakes
Comparing actual costs to the original static budget of $20m, resulting in a $3.5m adverse variance.
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