Question

Budget Solutions has determined from its flexible budget that selling costs for actual level activity for a period should have been $25,000. Actual selling costs incurred during the period were $28,000. What is the amount and direction of variance in selling costs?

Answer 1

Answer:

The variance of $3000 is adverse variance.

Explanation:

The reason is that increase in cost is always an adverse sign for the business. Similarly increase in revenue is always a positive sign for the business. So in this case, the actual cost of selling has been increased from the flexed result by $3000 (Actual less flexed budget) which means that the cost has been increased and this increased cost from a certain level (flexed budget level) is adverse cost for the company.