If a company has a budgeted profit of $100,000 and an actual profit of $80,000,

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Question: If a company has a budgeted profit of $100,000 and an actual profit of $80,000, what is the profit variance?

Options:

Correct Answer: $20,000 Unfavorable

Solution:

Profit variance = Actual Profit - Budgeted Profit = $80,000 - $100,000 = -$20,000, which is Unfavorable.

If a company has a budgeted profit of $100,000 and an actual profit of $80,000, what is the profit variance?

If a company has a budgeted profit of $100,000 and an actual profit of $80,000, what is the profit variance?

Step 1: Identify the budgeted profit, which is $100,000.
Step 2: Identify the actual profit, which is $80,000.
Step 3: Use the formula for profit variance: Profit Variance = Actual Profit - Budgeted Profit.
Step 4: Substitute the values into the formula: Profit Variance = $80,000 - $100,000.
Step 5: Calculate the result: $80,000 - $100,000 = -$20,000.
Step 6: Determine if the variance is favorable or unfavorable. Since the result is negative (-$20,000), it is Unfavorable.

Profit Variance – The difference between actual profit and budgeted profit, indicating performance against financial expectations.