The fixed budget indicates direct labor costs of $27,500. Actual direct labor costs were $27,000. The variance is:

The fixed budget indicates direct labor costs of $27,500. Actual direct labor costs were $27,000. The variance is:

• A. $700 favorable
• B. $0 variance
• C. $500 unfavorable
• D. $500 favorable

Answer: (D)

Fixed-budget variances compare actual costs to a fixed, planned amount for the period. If actual costs are less than the fixed budget, the variance is favorable; if actual costs exceed the fixed budget, the variance is unfavorable. Here, the fixed budget for direct labor is $27,500, while actual costs are $27,000. The difference is $27,000 − $27,500 = −$500. Because actual spending is $500 under the budget, the variance is $500 favorable.

Fixed-budget variances compare actual costs to a fixed, planned amount for the period. If actual costs are less than the fixed budget, the variance is favorable; if actual costs exceed the fixed budget, the variance is unfavorable.

Here, the fixed budget for direct labor is $27,500, while actual costs are $27,000. The difference is $27,000 − $27,500 = −$500. Because actual spending is $500 under the budget, the variance is $500 favorable.