BEC Flexible Variance

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  • #186694
    Anonymous
    Inactive

    Can someone explain to me why answer D, is the correct answer to this question? I thought that the Flexible Budget was the Master Budget prices, adjusted for actual results. I am wondering why it’s not 10,000 Favorable.

    Quick Co. was analyzing variances for one of its operations. The initial budget forecast production of 20,000 units during the year with a variable manufacturing overhead rate of $10 per unit. Quick produced 19,000 units during the year. Actual variable manufacturing costs were $210,000. What amount would be Quick’s flexible budget variance for the year?

    $10,000 favorable.

    $20,000 favorable.

    $10,000 unfavorable.

    $20,000 unfavorable.

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  • #578720
    JamesBJames
    Participant

    For flexible budget variance analysis, I think they're asking the difference between 1) the actual costs and 2) what the budget says we should have spent based on our actual output; our standard hours allowed (so what you said, the budget price adjusted for the actual result)

    #1's easy enough. It tells you that the actual costs are $210,000.

    #2's not that much harder, actually — it tells you all the information in the prompt. We produced 19,000 units, The budget says we should have spent $10 per unit for a total of $190,000. That's bad. We overspent by $20,000 because the actual price was a bit higher than the budgeted price.

    EDIT: I get tripped up on this stuff a lot. I don't think Becker does an amazing job explaining it, personally.

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