Question 1

A cloud hosting company prepared a fixed budget for 5,000 server deployments, estimating total costs of $250,000 (comprising $100,000 fixed costs and $150,000 variable costs). 
Actual deployments were 6,000.

What should be the total cost allowance in the flexible budget for control purposes?

Accepted Answer

Separate fixed and variable costs. Calculate the variable cost per unit from the original budget. Multiply this by the actual activity level, then add back the original fixed costs.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Flexing the fixed costs as well (resulting in $300,000).

A cloud hosting company prepared a fixed budget for 5,000 server deployments, estimating total costs of $250,000 (comprising $100,000 fixed costs and $150,000 variable costs).
Actual deployments were 6,000.

What should be the total cost allowance in the flexible budget for control purposes?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA MA — Management Accounting Practice Exam 2

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