If a company has a budgeted profit of $30,000 and actual profit of $25,000, what

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Question: If a company has a budgeted profit of $30,000 and actual profit of $25,000, what is the profit variance?

Options:

Correct Answer: $5,000 Unfavorable

Solution:

Profit variance = Actual Profit - Budgeted Profit = $25,000 - $30,000 = -$5,000, which is unfavorable.

If a company has a budgeted profit of $30,000 and actual profit of $25,000, what is the profit variance?

If a company has a budgeted profit of $30,000 and actual profit of $25,000, what is the profit variance?

Step 1: Identify the budgeted profit, which is $30,000.
Step 2: Identify the actual profit, which is $25,000.
Step 3: Use the formula for profit variance: Profit Variance = Actual Profit - Budgeted Profit.
Step 4: Substitute the values into the formula: Profit Variance = $25,000 - $30,000.
Step 5: Calculate the result: $25,000 - $30,000 = -$5,000.
Step 6: Interpret the result: A negative variance of -$5,000 means the profit is lower than expected, which is unfavorable.

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