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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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A firm comparing the actual variable costs of producing 10,000 units with the total variable costs of a static budget based on 9,000 units would probably see

  1. a. no variances.
  2. b. small favorable variances.
  3. c. large unfavorable variances.
  4. d. large favorable variances.
  5. e. small unfavorable variances.

To determine

Explain the type of variance that managers would observe while comparing the actual cost with the cost computed using static budget.

Explanation

Static Budgets:

Static budgets do not deviate with the level of activity or volume. Static budgets can be used to make master budgets.

c.

In case, actual cost is based on 10,000 units and expected cost is based on 9,000 units, then expected cost in total would be much lesser than actual cost. Consequently, large unfavorable variances would be observed. Therefore, this is the correct option.

a.

Variance would occur; since, actual cost would be larger than expected cost as, it is based on 10,000 units rather than 9,000 units. Therefore, this is not the correct option...

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