The budgeted cost of a project is $863,000, however, the actual cost of implemen

Question

The budgeted cost of a project is $863,000, however, the actual cost of implementation was $857,800. The data in the table which follows gives the budgeted and actual cost information of each phase of the project. a) For each activity, calculate the Quantity Variance = (Actual Quantity - Budgeted Quantity) times Budgeted Price b) For each activity, calculate the Price Variance = (Actual Price - Budgeted Price) times Actual Quantity c) Identify the two main factors which accounted for the difference between actual and budgeted costs.

Explanation / Answer

a) Activity qty variance Phase 1 (60-50)*100 1000 Phase 2 (10-4)*2000 12000 Phase 3 (80-100)*500 -10000 Phase 4 (80-80)*10000 0 b) Activity Phase 1 (120-100)*60 1200 Phase 2 (2500-2000)*10 5000 Phase 3 (520-500)*80 1600 Phase 4 (9800-10000)*80 -16000 c) Activity in Phase 1 & phase 2 are the major reason behind increase in cost They used higher qty and cost more than the budget leading to hike in actual cost of implementation

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