If the actual cost of production is $120,000 and the budgeted cost is $100,000,

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Question: If the actual cost of production is $120,000 and the budgeted cost is $100,000, what is the cost variance?

Options:

Correct Answer: $20,000 Unfavorable

Solution:

Cost Variance = Actual Cost - Budgeted Cost = $120,000 - $100,000 = $20,000 Unfavorable.

If the actual cost of production is $120,000 and the budgeted cost is $100,000, what is the cost variance?

If the actual cost of production is $120,000 and the budgeted cost is $100,000, what is the cost variance?

Step 1: Identify the actual cost of production, which is $120,000.
Step 2: Identify the budgeted cost of production, which is $100,000.
Step 3: Use the formula for cost variance: Cost Variance = Actual Cost - Budgeted Cost.
Step 4: Substitute the values into the formula: Cost Variance = $120,000 - $100,000.
Step 5: Calculate the result: $120,000 - $100,000 = $20,000.
Step 6: Determine if the variance is favorable or unfavorable. Since the actual cost is higher than the budgeted cost, it is unfavorable.

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