Prevo Products Inc.has a $15 000 unfavourable flexible budget variance for July.If July's actual net income was $300 000,which of the following statements is true?
A) Prevo's static budget must have showed net income of $315 000.
B) Prevo's static budget must have showed net income of $285 000.
C) Prevo's flexible budget must have showed net income of $315 000.
D) Prevo's flexible budget must have showed net income of $285 000.

Question

Quizplus · Accepted Answer

A flexible budget variance is the difference between the flexible budget and the actual results. Since the variance is unfavourable by $15,000 and the actual net income is $300,000, the flexible budget must have forecasted a higher net income of $315,000 ($300,000 actual + $15,000 unfavourable variance).