A company budgeted for $200,000 in production costs but incurred $220,000. What

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Question: A company budgeted for $200,000 in production costs but incurred $220,000. What is the cost variance?

Options:

Correct Answer: $20,000 Unfavorable

Solution:

Cost variance = Actual Costs - Budgeted Costs = $220,000 - $200,000 = $20,000 Unfavorable.

A company budgeted for $200,000 in production costs but incurred $220,000. What is the cost variance?

A company budgeted for $200,000 in production costs but incurred $220,000. What is the cost variance?

Step 1: Identify the budgeted costs. In this case, the budgeted costs are $200,000.
Step 2: Identify the actual costs incurred. Here, the actual costs are $220,000.
Step 3: Calculate the cost variance by subtracting the budgeted costs from the actual costs. This means you do $220,000 (actual costs) - $200,000 (budgeted costs).
Step 4: Perform the subtraction. $220,000 - $200,000 equals $20,000.
Step 5: Determine if the variance is favorable or unfavorable. Since the actual costs are higher than the budgeted costs, the variance is unfavorable.

Cost Variance – Cost variance measures the difference between actual costs incurred and budgeted costs, indicating whether the costs were higher or lower than expected.