QUESTION 9 The following information is given for Ace Company: Actual Amount Flexible budget Original (Master) Budget Units 900 900 1,000 Revenue $85,500 ($95 per unit) $81,000 $90,000 ($90 per unit) Variable costs $54,000 ($60 per unit) $45,000 $50,000 ($50 per unit) Fixed costs $14,000 $15,000 $15,000 Total costs $68,000 $60,000 $65,000 Profit $17,500 $21,000 $25,000 Note: Activity variance = Sales activity variance Revenue variance = Sales price variance Cost variance = Manufacturing or Production cost variance Which of the following is not true? A. Profit variance is $4,000, Unfavorable. B. Revenue variance is $4,500, Favorable. C. The difference between the actual profit and the originally budgeted profit can be explained by the profit variance and the activity variance of profit. D. The lower activity level (than originally planned) resulted in lower amount of profit (that should have generated) by $4,000. E. Given the actual units made and sold, Ace generated $7,500 less profit than it should have.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
QUESTION 9
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The following information is given for Ace Company:
Actual Amount
Flexible budget
Original (Master) Budget
Units
900
900
1,000
Revenue
$85,500
($95 per unit)
$81,000
$90,000
($90 per unit)
Variable costs
$54,000
($60 per unit)
$45,000
$50,000
($50 per unit)
Fixed costs
$14,000
$15,000
$15,000
Total costs
$68,000
$60,000
$65,000
Profit
$17,500
$21,000
$25,000
Note: Activity variance = Sales activity variance
Revenue variance = Sales price variance
Cost variance = Manufacturing or Production cost variance
Which of the following is not true?
A. Profit variance is $4,000, Unfavorable.
B. Revenue variance is $4,500, Favorable.
C. The difference between the actual profit and the originally budgeted profit can be explained by the profit variance and the activity variance of profit.
D. The lower activity level (than originally planned) resulted in lower amount of profit (that should have generated) by $4,000.
E. Given the actual units made and sold, Ace generated $7,500 less profit than it should have.
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