Which of the following variances will always be favorable when actual unit sales exceed budgeted unit sales?Multiple ChoiceSales activityVariable costFixed costOperating profit
Question
Which of the following variances will always be favorable when actual unit sales exceed budgeted unit sales?Multiple ChoiceSales activityVariable costFixed costOperating profit
Solution
The variance that will always be favorable when actual unit sales exceed budgeted unit sales is the Sales activity variance.
Here's why:
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Sales Activity Variance: This is the difference between the budgeted sales and the actual sales. If actual sales exceed the budgeted sales, the variance is favorable because more sales than expected were made.
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Variable Cost Variance: This is the difference between the actual variable cost and the budgeted variable cost. If actual sales exceed budgeted sales, the variable cost variance may not necessarily be favorable because more sales could mean higher variable costs.
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Fixed Cost Variance: This is the difference between the actual fixed cost and the budgeted fixed cost. The level of sales does not affect fixed costs, so the variance will not necessarily be favorable if actual sales exceed budgeted sales.
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Operating Profit Variance: This is the difference between the actual operating profit and the budgeted operating profit. While more sales can lead to a higher operating profit, it's not guaranteed because other factors like costs also affect the operating profit.
So, the Sales activity variance will always be favorable when actual unit sales exceed budgeted unit sales.
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