Which of the following is the correct formula?Multiple choice question.Cost variance = (AQ x AP) - (SQ x SP)Cost variance = (AP -SP) x AQCost variance = (AQ - SQ) x SPCost variance = (AQ x AP) - (AQ x SP)
Question
Which of the following is the correct formula?Multiple choice question.Cost variance = (AQ x AP) - (SQ x SP)Cost variance = (AP -SP) x AQCost variance = (AQ - SQ) x SPCost variance = (AQ x AP) - (AQ x SP)
Solution
The correct formula for cost variance is: Cost variance = (AQ x AP) - (SQ x SP)
Here's a step-by-step breakdown:
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AQ x AP: This is the actual cost of the work performed. It's calculated by multiplying the actual quantity of work performed (AQ) by the actual price of work (AP).
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SQ x SP: This is the standard cost of the work performed. It's calculated by multiplying the standard quantity of work that should have been performed (SQ) by the standard price of work (SP).
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(AQ x AP) - (SQ x SP): This is the cost variance. It's calculated by subtracting the standard cost of work from the actual cost of work. If the result is positive, it means the project is over budget. If the result is negative, it means the project is under budget.
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