ECONOMICS
BUDGETING
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
Which one of these is most likely to result in an adverse overheads variance?
|
|
Customer respond to price cut.
|
|
|
Management get a surprise pay increase.
|
|
|
Capital spending fall short of budget.
|
|
|
Actual gross profit margin is 5% less than budget.
|
Explanation:
Detailed explanation-1: -An adverse variance is where actual income is less than budget, or actual expenditure is more than budget. This is the same as a deficit where expenditure exceeds the available income.
Detailed explanation-2: -Find ways to reduce the variance. This could involve imposing greater controls on labour costs, reducing staffing levels or overtime rates. It may also wish to check the viability of the budgeted figure.
Detailed explanation-3: -The cost is more (or less) than budgeted. Budgets are prepared in advance and can only ever estimate income and expenditure. Planned activity did not occur when expected. Change in planned activity. Error/Omission.
There is 1 question to complete.