Question

The following information was drawn from the accounting records of Ashton Company. Budgeted Actual Sales $ 5,000 $ 6,000 Cost of Goods Sold (3,000 ) (3,600 ) Gross Margin 2,000 2,400 Variable Cost (1,000 ) (1,200 ) Fixed Cost (500 ) (400 ) Net Income $ 500 $ 800 Based on this information Ashton Company has a
a. $200 favorable fixed operating cost variance
b. $200 unfavorable fixed operating cost variance
c. $100 favorable fixed operating cost variance
d. $100 unfavorable fixed operating cost variance.

Answer 1

Answer: c. $100 favorable fixed operating cost variance

Explanation:

Cost Variance is a way of measuring the efficiency of a Company or segment in terms of how well they are managing resources and keeping with the budget.

It is calculated by subtracting the Actual balance from the Budgeted balance.

If the result is negative it is called UNFAVORABLE. If it is positive on the other hand it'll be labeled FAVORABLE.

Option C is correct because,

Budgeted balance of Fixed Cost is 500.

Actual balance is 400.

Fixed Operating Cost Variance = 500 - 400

= $100

$100 is positive so it is $100 FAVORABLE.